AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1997JUNE 26, 2001
REGISTRATION NO. 333-23073333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
UCAR INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------(Exact name of registrant as specified in its charter)
DELAWARE 3620 06-1385548
(STATE OR OTHER JURISDICTION OF(State or other jurisdiction (Primary Standard (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
------------------------
39 OLD RIDGEBURY ROAD
DANBURY, CONNECTICUT 06817
(203) 207-7700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE,3102 WEST END AVENUE, SUITE 1100 NASHVILLE, TENNESSEE 37203
(615) 760-8227
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GILBERT E. PLAYFORD
CHAIRMAN OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PETER B. MANCINO, ESQ.
VICETHE BOARD, PRESIDENT
AND GENERAL COUNSELCHIEF EXECUTIVE OFFICER
UCAR INTERNATIONAL INC.
39 OLD RIDGEBURY ROAD
DANBURY, CONNECTICUT 06817
(203) 207-7740
(NAME AND ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies Requested To:3102 WEST END AVENUE, SUITE 1100
NASHVILLE, TENNESSEE 37203
(615) 760-8227
(Name and address, including zip code and telephone number,
including area code, of agent for service)
--------------------------
WITH COPIES TO:
M. RIDGWAY BARKER, ESQ. WILSON S. NEELY,KAREN G. NARWOLD, ESQ. D. COLLIER KIRKHAM,WILLIAM V. FOGG, ESQ.
BRIAN J. CALVEY, ESQ. GENERAL COUNSEL, CRAVATH, SWAINE & MOORE
RANDI-JEAN G. HEDIN, ESQ. VICE PRESIDENT AND SECRETARY WORLDWIDE PLAZA
KELLEY DRYE & WARREN LLP SIMPSON THACHER & BARTLETT CRAVATH, SWAINE & MOOREUCAR INTERNATIONAL INC. 825 EIGHTH AVENUE
TWO STAMFORD PLAZA 425 LEXINGTON3102 WEST END AVENUE, WORLDWIDE PLAZA
281 TRESSER BOULEVARDSUITE NEW YORK, NEW YORK 10017 825 EIGHTH AVENUE10019
281 TRESSER BLVD 1100 (212) 474-1000
STAMFORD, CONNECTICUT 06901 NEW YORK, NEW YORK 10019NASHVILLE, TENNESSEE 37203
(203) 324-1400 (615) 760-7724
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as possiblepracticable after the effective date of
this Registration Statement.registration statement becomes
effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
-------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act of 1933, please check the following box. / /
------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessaryCALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
Common stock, par value $.01 per share....... 9,200,000(3) $13.38 $123,096,000 $30,774.00
(1) Includes 1,200,000 shares subject to delay its effective date untilan over-allotment option granted to the
registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effectiveunderwriters.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Section 8(a)Rule 457(c).
(3) Includes preferred stock purchase rights attached to the shares of the Securities Act ofcommon
stock registered hereby. No additional consideration will be paid for such
rights.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
may determine.MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains two Prospectuses, one relating to a
public offering in the United States and Canada (the 'U.S. Offering') of an
aggregate of 4,640,000 shares ofSUBJECT TO COMPLETION, DATED JUNE 26, 2001
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
8,000,000 Shares
[LOGO]
UCAR INTERNATIONAL INC.
Common Stock
par value $.01 per share ('Common
Stock'),This is an offering of common stock by UCAR International Inc.
and the other relating to a concurrent
offering outside the United States and Canada (the 'International Offering') of
an aggregate of 1,160,000 shares of Common Stock. The complete Prospectus for
the U.S. Offering follows immediately after this explanatory note. After such
Prospectus are the following alternate pages for the Prospectus relating to the
International Offering: a front outside cover page, a front inside cover page
and the pages containing the captions 'Available Information,' 'Incorporation of
Documents by Reference,' 'Subscription and Sale,' 'Legal Matters' and 'Experts.'
All other pages of the Prospectus for the U.S. Offering are to be used for both
the U.S. Offering and the International Offering, except the back outside cover
page, which will be blank in the Prospectus for the International Offering, and
the information appearing under 'Notice to Canadian Residents,' which will not
be included in the Prospectus for the International Offering.
5,800,000 Shares
UCAR INTERNATIONAL INC.
COMMON STOCK
($.01 par value)
------------------
All 5,800,000 shares of-------------------------------------------------------------------
Our common stock par value $.01 per share ('Common Stock'),
of UCAR International Inc. ('UCAR') being sold (the 'Shares') are being sold by
Blackstone Capital Partners II Merchant Banking Fund L.P. ('BCP'), Blackstone
Offshore Capital Partners II L.P. ('BOCP') and Blackstone Family Investment
Partnership II L.P. ('BFIP' and, together with BCP and BOCP, 'Blackstone'
or the 'Selling Stockholders'). See 'Selling Stockholders.' UCAR will
repurchase 1,300,000 shares of Common Stock from Blackstone (the
'Blackstone Share Repurchase') upon the closing of the Offering (as
defined below), which repurchase will constitute part of UCAR's
previously announced stock repurchase program. See 'Summary--Recent
Developments.' Following the closing of the Offering and the
Blackstone Share Repurchase and excluding the Retained Interest
(as defined under 'Selling Stockholders'), Blackstone will own
1.3% of the outstanding Common Stock (0.0%, if the
over-allotment option is exercised in full). The Retained
Interest will constitute 3.1% of the outstanding Common Stock.
See 'Risk Factors--Shares Eligible For Future Sale' and
'Selling Stockholders.' UCAR will not receive any of the
proceeds from the sale of the Shares.
Of the 5,800,000 shares of Common Stock being offered, 4,640,000 shares (the
'U.S. Shares') are initially being offered in the United States and Canada by
the U.S. Underwriters (the 'U.S. Offering') and 1,160,000 shares (the
'International Shares') are initially being concurrently offered outside
the United States and Canada by the Managers (the 'International
Offering' and, together with the U.S. Offering, the 'Offering').
The offering price and underwriting discounts and commissions of
the U.S. Offering and the International Offering are identical.
The Common Stock is listedtraded on the New York Stock Exchange, (the 'NYSE')or NYSE, under
the trading symbol 'UCR.'"UCR." On April 2, 1997,June 21, 2001, the last reported sale price of the Common
Stockour
common stock on the NYSE was $38.00.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED$13.17 per share.
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PER SHARE TOTAL
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Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to UCAR, before expenses........................... $ $
We have granted the underwriters an option for a period of 30 days to
purchase up to 1,200,000 additional shares of our common stock.
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INVESTING IN CONNECTION WITH
AN INVESTMENT IN THEOUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE 'RISK FACTORS'"RISK FACTORS" BEGINNING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY10.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION ORNOR ANY STATE SECURITIES
COMMISSION NOR HAS THEAPPROVED OR DISAPPROVED OF THESE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE
ACCURACYADEQUACY OR ADEQUACYACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS STOCKHOLDERS(1)
--------------- -------------- ----------------
Per Share......................................................... $38.00 $1.425 $36.575
Total(2).......................................................... $220,400,000 $8,265,000 $212,135,000
(1) Before deduction of expenses payable by UCAR estimated at $800,000.
(2) Blackstone has granted the U.S. Underwriters and the Managers an option,
exercisable by Credit Suisse First Boston Corporation for 30 days from the
date of this Prospectus, to purchase a maximum of 611,227 additional shares
of Common Stock solely to cover over-allotments of Shares. If the option
is exercised in full, the total Price to Public will be $243,626,626,
Underwriting Discounts and Commissions will be $9,135,998, and Proceeds
to Selling Stockholders will be $234,490,628.
The U.S. Shares are offered by the several U.S. Underwriters when, as and if
delivered to and accepted by the U.S. Underwriters and subject to their right to
reject orders in whole or in part. It is expected that the U.S. Shares will be
ready for delivery on or about April 8, 1997, against payment in immediately
available funds.JPMORGAN
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
PAINEWEBBER
INCORPORATED
THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
Prospectus dated April 3, 1997., 2001
AVAILABLE INFORMATIONTABLE OF CONTENTS
PAGE
--------
Preliminary Notes..................... ii
Where You Can Find More Information... iv
Incorporation of Certain Documents by
Reference........................... iv
Forward Looking Statements............ v
Prospectus Summary.................... 1
Risk Factors.......................... 10
Use of Proceeds....................... 18
Price Range of Common Stock and
Dividend Policy..................... 19
Capitalization........................ 21
Selected Consolidated Financial
Data................................ 22
PAGE
--------
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 49
Management............................ 74
Shares Eligible for Future Sale....... 77
Certain U.S. Tax Consequences for Non-
U.S. Investors...................... 78
Underwriting.......................... 81
Notice to Canadian Residents.......... 83
Legal Matters......................... 84
Experts............................... 84
Index to Consolidated Financial
Statements.......................... F-1
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
information that is different. We are offering to sell, and seeking offers to
buy, these securities only, and this prospectus may be used only, in
jurisdictions where offers and sales of these securities are permitted. The
information contained or incorporated by reference in this prospectus may be
accurate only on the date of the document containing the information.
i
PRELIMINARY NOTES
IMPORTANT TERMS
We use the following terms to identify various companies or groups of
companies or other matters. These terms help to simplify the presentation of
information in this prospectus.
"UCAR" refers to UCAR International Inc. only. UCAR is our public parent
company and the issuer of the publicly traded common stock offered pursuant to
this prospectus.
"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 bank credit facilities (as amended, the "NEW SENIOR
FACILITIES").
"GRAFTECH" refers to Graftech Inc. only. Graftech is our 97.5% owned (wholly
owned prior to June 2001) operating subsidiary engaged in the development,
manufacture and sale of natural graphite-based products.
"CARBONE SAVOIE" refers to Carbone Savoie S.A.S. only. Carbone Savoie is a
70% owned subsidiary engaged in the development, manufacture and sale of
graphite and carbon cathodes.
"SUBSIDIARIES" refer to those companies which, at the relevant time, are or
were majority owned or wholly owned directly or indirectly by UCAR or by 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, 1998 through March 31, 2001, except for:
- our German subsidiary, which was acquired in early 1997 and 70% owned
until early 1999, when it became wholly owned, and
- Carbone Savoie, which has been and is 70% owned.
Our 100% owned Brazilian cathode manufacturing operations were contributed to
Carbone Savoie, and as a result became 70% owned, on March 31, 2001.
"WE," "US" or "OUR" refer collectively to UCAR and its subsidiaries or, if
the context so requires, UCAR, UCAR Global or UCAR Finance, individually.
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, such as our joint venture with Jilin Carbon Co., Ltd.
("JILIN"), 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 supplier strategy do not
include the impact of special, non-recurring or unusual charges or credits, such
as those related to investigations, lawsuits or
ii
claims, restructurings, impairment losses, inventory write-downs or expenses
incurred in connection with lawsuits initiated by us, or the impact of
accounting changes.
All cost savings and reductions are estimates based on a comparison to:
- in the case of our global restructuring and rationalization plan adopted
in September 1998 and enhancements thereto in October 1999, with respect
to interest expense and provision for income taxes, costs in 1998 or, for
all other costs, costs in the 1998 fourth quarter (annualized),
- costs in 1999, in the case of actions taken in 2000, and
- costs in 2000, in the case of actions taken in 2001.
Unless otherwise noted, references to "MARKET SHARES" are based on unit
volume and not revenues in 2000. As used herein, references to "MAJOR PRODUCT
LINES" mean graphite and carbon electrodes and cathodes and flexible graphite.
Neither any statement in this prospectus nor any charge taken by us relating
to any legal proceedings constitutes an admission as to any wrongdoing or
liability.
Unless otherwise specifically noted, market and market share data in this
prospectus are our own estimates. Market data relating to the steel industry,
our general expectations concerning such industry and our market position and
market share within such industry, both domestically and internationally, are
derived from publications by the International Iron and Steel Institute and
other industry sources as well as assumptions made by us, based on such data and
our knowledge of the industry, which we believe to be reasonable. Market data
relating to the fuel cell power generation industry, our general expectations
concerning such industry and our market position and market share within such
industry, both domestically and internationally, are derived from publications
by securities analysts relating to Ballard Power Systems Inc. ("BALLARD"), other
industry sources and public filings, press releases and other public documents
of Ballard as well as assumptions made by us, based on such data and our
knowledge of the industry, which we believe to be reasonable. Market and market
share data relating to the graphite and carbon industry as well as cost
information relating to our competitors, our general expectations concerning
such industry and our market position and market share within such industry,
both domestically and internationally, are derived from the sources described
above and public filings, press releases and other public documents of our
competitors as well as assumptions made by us, based on such data and our
knowledge of the industry, which we believe to be reasonable. Although we are
not aware of any misstatements regarding any industry or market share data, our
estimates involve risks and uncertainties and are subject to change based on
various factors, including those discussed under "Risk Factors," and we cannot
guarantee the informational requirementsaccuracy 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 prospectus.
Unless otherwise noted, when we refer to dollars, we mean U.S. dollars.
iii
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the
Securities
Exchange Act of 1934 (the 'Exchange Act')1933 with respect to our common stock being offered by this
prospectus. The term "registration statement", of which this prospectus is a
part, means the original registration statement and all amendments, including
all schedules and exhibits. This prospectus does not contain all of the
information in the registration statement because we have omitted parts of the
registration statement in accordance therewith, files
reports, proxy and information statements and other information with the Securities and Exchange Commission (the 'Commission').rules of the SEC. Please refer to
the registration statement for any information in the registration statement
that is not included in this prospectus. The reports, proxy and
information statements and other information so filed mayregistration statement can be
inspected and copied at the locations described below. In addition, each
statement made in this prospectus concerning a document filed as an exhibit to
the registration statement is qualified in its entirety by reference to that
exhibit for a complete statement of its provisions.
We are required to file periodic reports, proxy statements and other
information relating to our business, financial statements and other matters
with the SEC. Our SEC filings are available to the public over the Internet at
the SEC's Web site at HTTP://WWW.SEC.GOV. You may also read and copy any
document we file at the SEC's public reference facilities maintained by the Commissionroom located at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, andas well as at the Commission's
Regional Officesregional offices of the SEC
located at Seven7 World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of suchPlease call the SEC at
1-800-SEC-0330 for further information on the public reference rooms and their
copy charges. Our reports proxy and informationproxy statements and other information can be obtained at prescribed rates from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants (including UCAR) that
file electronically with the Commission. The address of such Web site is
http://www.sec.gov. The Common Stock is listed on the NYSE, and reports, proxy
and information statements and other information filed with the Commissionrelating to
us can also be inspected at the offices of the NYSE located at 20 Broad Street, New York, New
York 10005.
UCAR has filed with the Commission a Registration Statement on Form S-3
(together with amendments, exhibits, schedules and supplements thereto, the
'Registration Statement') under the Securities Act of 1933 (the 'Securities
Act') with respect to the Shares. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth in
the Registration Statement. Information omitted has been omitted as permitted by
the rules and regulations of the Commission. For further information with
respect to UCAR and the Shares, reference is made to the Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Registration Statement may be inspected at, and copies of
all or any portion of the Registration Statement can be obtained at prescribed
rates from, the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549.
UCAR is a corporation formed under the laws of the State of Delaware on
November 24, 1993. The mailing address of its principal executive office is 39
Old Ridgebury Road, Danbury, Connecticut 06817. The telephone number of such
office is (203) 207-7700.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by UCARus with the CommissionSEC under Section 12, 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934 are incorporated by
reference ininto this Prospectus:
(a) UCAR'sprospectus:
- Annual Report on Form 10-K for the year ended December 31, 1996;
(b) UCAR's Notice of Meeting and2000, filed on
March 20, 2001,
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, filed
on May 8, 2001,
- Proxy Statement on Schedule 14A, dated March 19, 2001 for the 1996 Annual
Meetingour annual
meeting of Stockholders; and
(c)stockholders held on May 8, 2001,
- Current Report on Form 8-K, filed on May 15, 2001,
- Current Report on Form 8-K, filed on June 5, 2001,
- the description of UCAR's capitalour common stock contained in UCAR's
Registration Statementour registration
statement on Form 8-A (File No. 1-13888) dated July 28, 1995, as updated by
any amendment or report filed forwith
the purposeSEC under Section 12 of updating such
description.the Exchange Act, and
- the description of our preferred stock purchase rights contained in our
registration statement on Form 8-A (File No. 1-13888) dated September 10,
1998, filed with the SEC under Section 12 of the Exchange Act.
In addition, all reports and other documents filed by UCARwe subsequently file pursuant
to Section 12, 13(a), 13(c), 14 or 15(d) of the Exchange Act on or after the
date of this Prospectus and prior to
the terminationinitial filing of the Offeringregistration statement and until the time that we sell all
the securities described in this prospectus shall be deemed to be incorporated
by reference
hereinin this prospectus and to be a part hereofof this prospectus from the date of filing
of such reports and documents. Any statement contained herein or in a previously filed
document incorporated or deemed to be incorporated by reference herein shall be deemed to bein this prospectus is modified or superseded
for purposes of this Prospectus
to the extent that a statement contained herein
or in any other subsequently filed document that also is incorporated by
reference hereinthis prospectus modifies or
supersedes such statement. Any statement socontained in this prospectus or in a
document incorporated by reference in this prospectus is modified or superseded
shall notto the extent that a statement contained in any subsequently filed document
which is or is deemed to be deemed, except as soincorporated by
iv
reference in this prospectus modifies or supersedes such statement. Only the
modified or superseded tostatement shall constitute a part of this Prospectus.
-2-
UCAR will provide without charge to each person, including any beneficial
owner of Common Stock, to whomprospectus.
You may request a copy of this Prospectus is delivered, upon thethese filings, other than their exhibits, at no
cost, by oral or written or oral request of any such person, a copy of any or all of the
documents incorporated by reference herein (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
the documents that this Prospectus incorporates by reference). Such requests
should be addressed toto: UCAR International Inc., 39 Old Ridgebury Road, Danbury,
Connecticut 06817,3102 West End
Avenue, Suite 1100, Nashville, Tennessee 37203, Attention: Investor Relations, telephone number (203)
207-7726.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICENancy Falls,
Treasurer, Telephone (615) 760-7720.
FORWARD LOOKING STATEMENTS
This prospectus contains forward looking statements. In addition, from time
to time, we or our representatives have made or may make forward looking
statements orally or in writing. These include statements about such matters as:
future production and sales of steel, aluminum, fuel cells, electronic devices
and other products that incorporate our products or that are produced using our
products; 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, realignment, strategic alliance, supply
chain, technology development and collaboration, 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 and other actions regarding debt or equity
securities of our subsidiaries; and future costs, working capital, revenue,
business opportunities, values, debt levels, cash flow, cost savings and
reductions, margins, earnings and growth. The words "will," "may," "plan,"
"estimate," "project," "believe," "anticipate," "intend," "expect" and similar
expressions identify some of these statements.
Actual future events and circumstances (including future performance,
results and trends) could differ materially from those set forth in these
statements due to various factors. These factors include:
- the possibility that global or regional economic conditions affecting our
products may not improve or may worsen,
- 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,
- the possibility that increased production of steel in electric arc
furnaces or reductions in graphite electrode manufacturing capacity may
not result in stable or increased demand for or price or sales volume of
graphite electrodes,
- the possibility that economic or technological developments may adversely
affect growth in the use of graphite cathodes in lieu of carbon cathodes
in the aluminum smelting process,
- the possibility of delays in or failure to achieve widespread
commercialization of proton exchange membrane ("PEM") fuel cells which use
natural graphite materials and components and the possibility that
manufacturers of PEM fuel cells using those materials or components may
obtain those materials or components or the natural graphite used in them
from other sources,
- the possibility of delays in or failure to achieve successful development
and commercialization of new or improved electronic thermal management or
other products, the possibility of delays in meeting or failure to meet
contractually specified development objectives and the possible inability
to fund and successfully complete expansion of manufacturing capacity to
meet growth in demand for new or improved products, if any,
- 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,
v
- the occurrence of unanticipated events or circumstances relating to
pending antitrust investigations, lawsuits or claims,
- the commencement of new investigations, lawsuits or claims relating to the
same subject matter as the pending investigations, lawsuits or claims,
- 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,
- the possibility that expected cost savings from our enhanced global
restructuring and rationalization plan, our POWER OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE 'UNDERWRITING.'
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS, EVENTS AND CIRCUMSTANCES COULD DIFFER MATERIALLY FROM THOSE SET FORTH
IN SUCH STATEMENTS DUE TO VARIOUS FACTORS. SUCH FACTORS INCLUDE THE POSSIBILITY
THAT ANNOUNCED ADDITIONS TO ELECTRIC ARC FURNACE STEEL PRODUCTION CAPACITY MAY
NOT OCCUR, INCREASED ELECTRIC ARC FURNACE STEEL PRODUCTION MAY NOT OCCUR OR
RESULT IN INCREASED DEMAND OR HIGHER PRICES FOR GRAPHITE ELECTRODES, ACQUIRED
MANUFACTURING CAPACITY MAY NOT BE FULLY UTILIZED, TECHNOLOGICAL ADVANCES
EXPECTED BY THE COMPANY MAY NOT BE ACHIEVED, CHANGING ECONOMIC AND COMPETITIVE
CONDITIONS, OTHER TECHNOLOGICAL DEVELOPMENTS AND OTHER RISKS AND UNCERTAINTIES,
INCLUDING THOSE SET FORTH OR INCORPORATED BY REFERENCE HEREIN.
-3-
SUMMARY
The following summary is qualifiedONE initiative, the
restructuring of our graphite and carbon specialties business, the
shutdown of certain of our facilities and other cost reduction efforts
will not be fully realized,
- the possibility that we may incur unanticipated health, safety or
environmental compliance, remediation or other costs or experience
unanticipated raw material or energy supply, manufacturing operations or
labor difficulties,
- the occurrence of unanticipated events or circumstances relating to
strategic plans or programs or relating to restructuring, realignment,
strategic alliance, supply chain, technology development, investment,
acquisition, joint venture, operating, integration, tax planning,
rationalization, financial or capital projects,
- changes in its entiretyinterest 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 should be readother technological developments,
- the possibility that changes in conjunctionfinancial performance may affect our
compliance with financial covenants under the more detailed informationNew Senior Facilities, and
Consolidated Financial
Statements,- other risks and uncertainties, including the notes thereto, appearingthose described elsewhere or
incorporated by reference herein. Unless otherwise indicated, all information (i) assumesin this prospectus.
No assurance can be given that thereany future transaction about which forward
looking statements may be made 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 exerciseduty to update these statements.
vi
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
MAKING A DECISION TO INVEST IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS AND THE DOCUMENTS INCORPORATED BY REFERENCE CAREFULLY, INCLUDING
"RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE STATED, THE INFORMATION
CONTAINED IN THIS PROSPECTUS IS BASED ON THE ASSUMPTION THAT THE UNDERWRITERS'
OVER-ALLOTMENT OPTION WILL NOT BE EXERCISED.
FINANCIAL AND OTHER INFORMATION IN THIS PROSPECTUS (OTHER THAN OUR AUDITED
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS) HAS BEEN PRESENTED (AND RESTATED)
BASED ON THE REALIGNMENT OF OUR BUSINESS SEGMENTS IN 2001 INTO OUR GRAPHITE
POWER SYSTEMS DIVISION AND OUR ADVANCED ENERGY TECHNOLOGY DIVISION.
UCAR INTERNATIONAL INC.
We are one of the over-allotment option, (ii)world's largest providers of natural and synthetic
graphite and carbon products and services. Our products provide energy solutions
to customers in the steel, aluminum, fuel cell power generation, electronics,
semiconductor and transportation industries. Our customers include industry
leaders such as Nucor Corporation and the Arbed Group in steel, Alcoa Inc. and
Pechiney in aluminum, Ballard in fuel cells, Intel Corporation in electronics,
MEMC Electronic Materials, Inc. in semiconductors and The Boeing Company in
transportation. With over 100 years of experience in the development of graphite
and carbon technology, we currently hold about 320 issued patents and about 280
patent applications and perfected patent application priority rights worldwide
and conduct extensive state-of-the-art research and development activities in
both the U.S. and Europe. We have a global business, selling our products and
engineering and technical services in more than 80 countries, with 15
manufacturing facilities strategically located in Brazil, France, Italy, Mexico,
Russia, South Africa, Spain and the U.S. and a joint venture manufacturing
facility located in China, which, subject to required Chinese governmental
approvals, is expected to commence operations in 2002. As a result of our
experience, technology and manufacturing capability, we believe that we have the
largest worldwide market share in all of our major product lines.
In June 1998, we began to implement management changes which have resulted
in a new senior management team. This team has been adjustedactively lowered costs, reduced
debt and developed growth initiatives. In early 2001, we launched a strategic
initiative to reflect the reclassificationstrengthen our competitive position and to change our corporate
vision from an industrial products company to an energy solutions company. In
connection with this initiative, we have realigned our company and management
around two new operating divisions, our Graphite Power Systems Division and our
Advanced Energy Technology Division.
GRAPHITE POWER SYSTEMS DIVISION
Our Graphite Power Systems Division delivers high quality graphite and
carbon electrodes and cathodes and related services that are key components of
the Common Stock in connection with,conductive power systems used to produce steel, aluminum, and other
non-ferrous metals. We are the stock splits effected after, the leveraged recapitalization on January 26, 1995
(the 'Recapitalization') described in note 1 to the Consolidated Financial
Statements and (iii) assumes there have been no exercises after February 28,
1997 of options which have been or may be granted under employee stock option or
equity incentive plans.
Unless the context requires otherwise or otherwise indicated, all
references to 'UCAR' mean UCAR International Inc. and to the 'Company' mean
UCAR, its wholly- and majority-owned subsidiaries (including UCAR Global
Enterprises Inc., a direct, wholly-owned subsidiary of UCAR ('Global')), EMSA
(Pty.) Ltd., its 50%-owned affiliate ('EMSA'), and its and their predecessors
(insofar as a predecessor's activities related to the carbon and graphite
products business), collectively, except that such references do not include
UCAR Grafit OAO ('UCAR Grafit'), Carbone Savoie S.A.S. ('Carbone Savoie') or
UCAR Elektroden GmbH ('UCAR Elektroden' and, together with UCAR Grafit and
Carbone Savoie, the 'Acquired Companies') with respect to time periods prior to
their respective acquisitions. Unless otherwise indicated, all financial
information refers to that of the Company (including UCAR Grafit since its
acquisition) on a consolidated basis (using the equity method for EMSA).
All references to 'Home Markets' mean North America, Western Europe,
Brazil, Mexico and South Africa and to 'Free World' mean worldwide, excluding
China, the former Soviet Union, India and Eastern Europe (other than the former
East Germany).
THE COMPANY
The Company is the largest manufacturerleading producer of graphite and carbon
electrodes and cathodes in the world,world. In 2000, net sales of this division were
$651 million, with gross profit of $184 million.
Graphite electrodes, which accounted for about 81% of this division's net
sales in over 70 countries and manufacturing facilities, on
four continents. Graphite electrodes, the Company's principal product,2000, are consumed primarilya key component in the production of steel in an electric arc
furnace
('EAF'),furnaces, the steelmaking technology used by virtually all 'mini-mills,' as well
as in"mini-mills", the refining of steel using ladle furnaces. Carbon electrodes are consumed
primarily to produce silicon metal, which is used in the manufacture of
aluminum. Graphite electrodes and carbon electrodes accounted for approximately
73% and 6%, respectively,higher growth
sector of the Company's net sales in 1996. The Company also
manufactures other graphite and carbon products as well as cooling systems and
components for steelmaking furnaces and other high temperature applications.
The Company has benefited from reduced costs resulting from its successful
restructuring and re-engineering projects as well as from significant increases
in graphite electrode pricing (attributable in large part to an industry-wide
capacity reduction) which have taken place since mid-1992. The Company's net
sales have increased to $948 million in 1996 from $659 million in 1992. The
Company had operating profit in 1996 of $268 million as compared to operating
profit of $8 million (excluding restructuring costs) in 1992.
INDUSTRY OVERVIEW AND OUTLOOKsteel industry. Electrodes act as conductors of electricity in a
furnace, generating sufficient heat to melt scrap metal orand other raw materials used to produce
steel, silicon metal or other materials.
The electrodes are gradually consumed
in the course of such production. In the case ofThere is currently no commercially viable substitute for graphite electrodes in
an EAF,
one electrode must be replaced, on average, every eightelectric arc furnaces. They are the only product that combines the required
level of electrical conductivity with the ability to ten operating hours
('a stick a shift').withstand the high levels
of heat generated during the production of steel in electric arc furnaces.
Graphite electrodes are presently the only products
available that are capable of sustaining the levels of heat (as high as 5,000
degrees Fahrenheit) required in an EAF and, therefore, demandalso used
1
for graphite
electrodes is directly related to the amount of EAF steel produced.
Worldwide EAF steel production has significantly increased over the past
two decades and represented approximately 33% of total steel production in 1995
as compared to approximately 18% in 1975, according to
-4-
industry and Company estimates. There are presently in excess of 2,000 EAFs
operating worldwide, which the Company estimates produced approximately 247
million metric tons ofrefining steel in 1995. The Company estimatesladle furnaces and in other smelting processes. Carbon
electrodes are used in a similar fashion in the production of silicon metal, a
raw material used in the manufacture of aluminum.
Graphite and carbon cathodes are key components in the conductive power
systems used in aluminum smelting furnaces. We have used our expertise in
graphite technology and high temperature industrial applications together with
the technology of our strategic partner, Pechiney, the world's leading provider
of aluminum smelting technology, to develop significant improvements in graphite
cathodes. Graphite cathodes are the preferred technology for new smelting
furnaces in the aluminum industry because they allow for substantial
improvements in process efficiency. We believe that our improved graphite
cathodes position us well to receive incremental orders upon the net
increase in EAF steel production capacity was approximately 20 million metric
tons in 1995 and approximately 24 million metric tons in 1996. The Company
estimates that it supplied all or a portioncommencement of
the graphite electrodes consumed
by approximately 50%operation of the new, EAFsmore efficient smelting furnaces that are being built,
even as older furnaces are being shut down.
We believe that this division is positioned to benefit from the expected
cyclical recovery in steel production which, commenced operation during 1995coupled with our global network of
manufacturing facilities strategically located in key markets, we expect to
enhance our cash flow and 1996.
The Company believesearnings per share. We believe that EAF steelmakingthe recently
announced shutdown of our highest cost graphite electrode manufacturing
operations, located in Clarksville and Columbia, Tennessee, will continuefurther enhance
our position as a low cost supplier.
We believe that the barriers to grownew entrants in the futuregraphite and carbon
electrode industries are high. There have been no significant new entrants since
1950. We believe that EAF steelmakingour average capital investment to increase our annual
graphite electrode manufacturing capacity by about 15% would be about $500 per
metric ton, which we estimate is aless than 20% of the initial investment for
"greenfield" capacity.
The strategic goal of this division is to generate strong cash flow by
pursuing the following strategies:
- BEING THE LOW COST SUPPLIER. We have aggressively reduced our costs of
production by closing higher cost effectivefacilities and efficient methodmigrating that capacity
to lower cost facilities, reducing our cost of steel production. Over the past two decades, EAF steelmaking has become more
efficient and cost effective due to technological improvements in EAF
steelmaking processes and equipment design and in graphite electrodes. This
improved efficiency has resulted in a decrease in the quantity of graphite
electrodes consumedsales per metric ton of
steel produced (known as 'Specific
Consumption'). From 1985 through mid-1992,graphite electrodes by about 13% since the decrease was offset by increased
levelsend of EAF steel production, which resulted1998. We are continuing
our efforts to aggressively reduce costs and recently announced our
intention to shut down our graphite electrode manufacturing operations in
relatively stable demand forClarksville and Columbia, Tennessee, our highest cost graphite electrode
manufacturing operations. We believe that this division's cost structure
is currently among the lowest of all major producers of graphite
electrodes.
The Company believes- DELIVERING EXCEPTIONAL AND CONSISTENT QUALITY. We believe that since mid-1992, increased levelswe operate
the world's premier electrode and cathode research and development
laboratories and that our products are among the highest quality
available. We have worked diligently in recent years to improve the
consistent quality and uniformity of EAF steelour products on a worldwide basis,
providing the flexiblity to source most orders from the facility that best
satisfies customer needs and increases profitability. We believe that the
consistently high quality of our products enables customers to achieve
significant production efficiencies, which we believe provides us with an
important competitive advantage.
- PROVIDING SUPERIOR TECHNICAL SERVICE. We believe that we are the
recognized industry leader in providing value added technical service to
customers, and that we have more technical service engineers, located in
more countries, than offsetany of our competitors. We believe that our superior
service provides us with another important competitive advantage.
- CAPITALIZING ON OUR GLOBAL PRESENCE AND EXECUTING OUR ASIAN GROWTH
STRATEGY. We believe that this division has the decreasenumber one market share in
Specific
Consumption. The Company believesall of its major product lines. We are one of only two global producers of
graphite and carbon electrodes and cathodes. We believe that our network
of state-of-the-art manufacturing facilities in diverse geographic
regions, including Brazil, France, Italy, Mexico, Russia, South Africa and
Spain, coupled with our joint venture manufacturing facility located in
China, which, subject to required Chinese governmental
2
approvals, is expected to commence operations in 2002, provides us with
significant operational flexibility and a significant competitive
advantage. As the steel industry continues to consolidate, with the
largest steel producers now operating in multiple countries, we believe
that we are the producer of graphite electrodes best positioned to serve
their global demandpurchasing requirements.
Our new joint venture with Jilin in China is expected to provide us
with access to graphite electrode manufacturing capability in Asia for the
first time. To date, we believe that our share of the Asian market for
graphite electrodes will increase over the long-term at an average rate of 1% to 2% per year. The
Company has experienced, and expects to continue to experience, volatility with
respect to demand for graphite electrodes in certain geographic areas as general
economic conditions in such areas fluctuate. The Company believes that, on
average, as the costs (relative to the benefits) of achieving significant
further efficiencies in EAF graphite electrode consumption increase, the decline
in Specific Consumption will continue at a more gradual pace, although there can
be no assurance that such will be the case.
Since the mid-1980s, there has been a consolidation in the number of Free
World graphite electrode producers and a reduction of Free World graphite
electrode manufacturing capacity. Company capacity and Free World capacity, as
estimated by the Company, each has been reduced by one-third since 1985. In 1992
and 1993, in two separate transactions, three of the Company's largest
competitors combined into a single entity, SGL Carbon AG ('SGL'). The Company
believes that SGL's capacity is approximately one-third less than the combined
capacity of those three competitors in 1986. Principally as a result of this
consolidation and reduction, the Company believes that Free World capacity and
demand are currently in relative balance. The Company is not aware of any
construction of new graphite electrode manufacturing facilities in the Free
World. Presently, SGL is the only other global manufacturer of electrodes in the
Free World and there are in total only eight other Free World manufacturers.
The excess graphite manufacturing capacity and decreases in Specific
Consumption during the 1980s resulted in downward pressure on worldwide pricing.
The Company believes that, from 1982 to mid-1992, the average Free World
industry-wide price (in dollars and net of changes in currency exchange rates)
for graphite electrodes declined by approximately one-third. Since mid-1992,
there has been a significant improvement in Free World electrode pricing
(attributable, in large part, to such industry-wide reduction in capacity). The
Company believes that there were Free World industry-wide graphite electrode
price increases in 1992 through 1996, the effect of which was to increase
average Free World industry-wide prices (in dollars and net of changes in
currency exchange rates) by approximately 9% in 1993about 4% as compared to 1992, by
approximately 12%our worldwide
market share of about 30% (excluding the Asian market). We believe that
this low cost facility will provide us with an excellent platform to
expand our market share, both in 1994 as compared to 1993, by approximately 9% in 1995 as
compared to 1994China and by approximately 6% in 1996 as compared to 1995. The
Company estimates that the price of graphite electrodes represents only
approximately 3% of the price of finished steel produced by EAF steelmakers in the Free World.
The Company believesrest of Asia.
ADVANCED ENERGY TECHNOLOGY DIVISION
Our Advanced Energy Technology Division was established to develop high
quality, highly engineered natural and synthetic graphite- and carbon-based
energy technologies, products and services for high growth markets. We believe
that worldwide total crude steel productionwe will be successful because of our portfolio of proprietary technology
related to graphite and carbon materials science and our processing and
manufacturing technology. We currently sell natural and synthetic graphite- and
carbon-based products to the transportation, semiconductor, aerospace, fuel cell
power generation, electronics and other markets. Due to the growth potential for
fuel cell power generation, electronic thermal management and other identified
markets, we are investing substantial resources in 1997
will increase by approximately 2.5% to approximately 767 million metric tons and
that EAF steel production will increase at a greater rate due to a net increase
in EAF steel production capacity. Approximately 24 million metric tons of net
new EAF steel production capacity was added in 1996 and the Company is aware of
another approximately 54 million metric tons of announced net new EAF steel
production capacity that is scheduled to start-up through 1999. The Company
believes that this additional EAF production capacity will lead to continued
increases in worldwide demand for graphite electrodes in 1997 and that the
Company's worldwide manufacturing facilities and market share have positioned
the Company to benefit from these trends.
-5-
GROWTH STRATEGIES AND RECENT INITIATIVES
The Company expects worldwide demand for graphite electrodes to increase in
the near term due to increased EAF steel production from existing and proposed
new EAFs. The Company believes that it currently has adequate manufacturing
capacity to meet increased sales volume resulting from such increased near term
demand. In addition, the Company actively studies opportunities to leverage its
core competencies,developing proprietary
technologies and products for growth. Management teams,these markets. In addition, we are providing
cost-effective technical services for a broad range of markets and licensing our
proprietary technology in markets where we do not anticipate engaging in
manufacturing ourselves. This division currently holds about 140 of our issued
patents and about 250 of our pending patent applications and perfected patent
application priority rights worldwide. In 2000, net sales of this division were
$125 million, with gross profit of $32 million.
For the fuel cell power generation market, we are developing materials and
components for PEM fuel cells and fuel cell systems, including flow field plates
and gas diffusion layers. For the electronic thermal management market, we are
developing and selling thermal interface products and designs and developing and
introducing prototype heat spreaders, heat sinks and heat pipes for computer,
communications, industrial, military, office equipment and automotive electronic
applications. Other identified markets include fire retardant products for
transportation applications and building and construction materials
applications, industrial thermal management products for high temperature
process applications and conductive products for batteries and supercapacitor
power storage applications.
Natural graphite-based products, including flexible graphite, are developed
and manufactured by our subsidiary, Graftech. Our synthetic graphite- and
carbon-based products are developed and manufactured by our Advanced Graphite
and Carbon Materials business unit, which includes our former graphite and
carbon specialties businesses. Our technology, licensing and technical services
are marketed and sold by our High Tech High Temp business unit.
The strategic goal of this division is to create and deliver stockholder
value through commercialization of proprietary technologies into high growth
markets. To achieve this goal, we intend to leverage our strengths at:
- developing and protecting intellectual property,
- developing and commercializing prototype and next generation products and
services,
- establishing strategic alliances with customers, suppliers and other third
parties, and
3
- setting and achieving those milestones which are critical to the
successful, timely commercialization of our technologies.
We believe that our two largest growth opportunities are in the fuel cell
power generation and electronic thermal management markets.
FUEL CELL POWER GENERATION OPPORTUNITIES. Fuel cells provide power
generation for transportation, stationary and portable applications. The use of
fuel cells in the U.S. in light vehicles for transportation applications has
been projected by Frost & Sullivan to reach 2.6 million vehicles by 2010. We
believe that worldwide annual sales of fuel cells for non-transportation
applications (stationary and portable) could reach over $2 billion by 2010.
We have been working with outside consultants, continually seekBallard since 1992 on developing natural
graphite-based materials for use for power generation in Ballard fuel cells.
Ballard is the world leader in developing PEM fuel cells, including direct
methanol fuel cells, for power generation. In 1999, we entered into a
collaboration agreement with Ballard to definecoordinate our respective research and
development efforts on flow field plates and a supply agreement for flexible
graphite materials. In 2000, Ballard launched its new Mark 900 PEM fuel cell
stack and announced that it was the Company's
strengthsfoundation for Ballard fuel cells for
transportation, stationary and evaluate opportunitiesportable applications. The flow field plates used
in Ballard's Mark 900 PEM fuel cell stack are made from our GRAFCELL-TM-
advanced flexible graphite products.
In June 2001, our subsidiary, Graftech, entered into a new exclusive
development and collaboration agreement and a new exclusive long-term supply
agreement with Ballard, which significantly expand the scope and term of the
1999 agreements. In addition, Ballard became a strategic investor in Graftech,
investing $5 million for a 2.5% equity ownership interest, to support the
development and commercialization of natural graphitic materials and components
for PEM fuel cells.
The scope of the new exclusive development and collaboration agreement
includes natural graphite-based materials and components, including flow field
plates and gas diffusion layers, for use in PEM fuel cells and fuel cell systems
for transportation, stationary and portable applications. The initial term of
this agreement extends through 2011. As part of this agreement, we have agreed
to develop and manufacture prototype graphitic materials and components and
provide early stage testing of these strengthsprototypes in an on-site fuel cell testing
center. Under the new supply agreement, we will be the exclusive manufacturer
and supplier of natural graphite-based materials for Ballard fuel cells and fuel
cell systems. We will also be the exclusive manufacturer of natural
graphite-based components, other than those components Ballard manufactures for
itself. The initial term of this agreement, which contains customary terms and
conditions, extends through 2016. We have the right to increasemanufacture and sell,
after agreed upon release dates, natural graphite-based materials and components
for use in PEM fuel cells to other parties in the Company's netfuel cell industry. In
connection with the manufacture and sale of components, Ballard will grant us a
royalty-bearing license for related manufacturing process technology.
ELECTRONIC THERMAL MANAGEMENT OPPORTUNITIES. As electronics manufacturers
develop highly advanced integrated circuits, processing chips and power
supplies, their ability to dissipate heat is constrained by current thermal
management products and technology. We are developing and introducing high
quality, highly engineered products, designs and solutions for thermal
management in computer, communications, industrial, military, office equipment
and automotive electronic applications. We are targeting:
- thermal interface products, with a projected market of about $400 million
in annual sales at margins which, within twoby 2005, and an annual growth rate of about 17% through
2005, in each case, as projected by Business Communications Company, Inc.,
4
- heat sink products, with a projected market of about $850 million in
annual sales by 2005, and an annual growth rate of about 10% through 2005,
in each case, as projected by Business Communications Company, Inc., and
- heat spreader and heat pipe products, with a projected market of about
$585 million in annual sales by 2005, and an annual growth rate of about
20% through 2005, in each case, as projected by Business Communications
Company, Inc.
In December 2000, we announced the introduction of, and began selling, our
new line of eGraf-TM- thermal management products designed to three years after
implementation, are at or nearaid the margins that exist today. Areascooling of
potential
growth currently being pursued or considered include:
o Geographic expansions
o Product expansions
o Expansion of manufacturing operations
In line with its strategy of achieving growth both domestically and
internationally, the Company actively reviews possible acquisitionschip sets and other business opportunities onheat generating components in computers, communications
equipment and other electronic devices. We can provide custom or off-the-shelf
thermal interface products and designs, heat sinks, heat spreaders and heat
pipes and sophisticated thermal solutions for cooling complex devices. Our new
product line offers advantages for mobile communications and other electronic
devices over competitive products such as copper, aluminum and other current
thermal interface materials. These advantages include their excellent ability to
conduct heat, their mechanical and thermal stability, their lightweight,
compressible and conformable nature, their cost competitiveness, and their ease
of handling.
OTHER MATTERS
In June 1998, in response to the antitrust matters described below, we began
to implement management changes which have resulted in a regular basis.
Acquisitionnew senior management
team. In addition to reducing costs and debt and developing growth initiatives,
this team has actively managed antitrust liabilities and claims and pursued
potential recovery from our former parents.
Since 1997, we have been subject to antitrust investigations, lawsuits and
claims. We recorded a pre-tax charge against results of Minority Interestsoperations for 1997 in
the amount of $340 million as a reserve for estimated potential related
liabilities and Interestexpenses. In April 1998 and March 1999, we pled guilty to
violations of U.S. federal and Canadian antitrust law, respectively, in
Joint Venture
Affiliate. In 1994,connection with the Company acquired substantiallysale of graphite electrodes and were sentenced to pay a fine
of $110 million in six annual installments and a fine of Cdn. $11 million,
respectively. We have settled virtually all of the minority
stockholders' interestgraphite electrode antitrust
claims by steel makers in its Mexican subsidiary at a net cost of $23 million.
In addition, in 1995, the Company acquired substantially allU.S. and Canada as well as antitrust claims by
certain other customers. None of the sharessettlement or plea agreements contain
restrictions on future prices of our graphite electrodes. There remain, however,
certain pending lawsuits and claims. In January 2000, the antitrust authority of
the European Union initiated proceedings against us and other producers of
graphite electrodes alleging violations of its Brazilian subsidiaryantitrust laws in connection with
the sale of graphite electrodes. No fine has yet been assessed. 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, about $77.6 million in our
case (if assessed in 2001), and is subject to reduction for cooperation. The
antitrust authority of the European Union may permit any fine which may be
assessed to be paid over time. While there is no requirement as to when fines,
if any, must be assessed, we believe that it is likely that any fines to be
assessed by the antitrust authority of the European Union will be assessed
during the 2001 third quarter. We cannot assure you that remaining liabilities
and expenses in connection with antitrust investigations, lawsuits and claims
(including any fine which may be assessed by the antitrust authority of the
European Union) will not materially exceed the remaining uncommitted balance of
the reserve or that the timing of payment thereof will not be sooner than
anticipated. At March 31, 2001, the remaining uncommitted balance of the reserve
was about $44 million. To the extent that aggregate liabilities and expenses,
net, are known or reasonably estimable, such amount continues to represent our
estimate of these 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.
In February 2000, we commenced a lawsuit against our former parents,
Mitsubishi Corporation and Union Carbide Corporation. In the lawsuit, we allege,
among other things, that certain payments made
5
to our former parents in connection with our 1995 equity recapitalization were
ownedunlawful under Delaware corporate law, that our former parents were unjustly
enriched by public shareholdersreceipts from their investments in BrazilUCAR 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. The defendants have filed motions to dismiss this lawsuit
and motions to disqualify certain of our counsel from representing us in this
lawsuit.
In May 2001, we announced that we intend to shut down our graphite electrode
manufacturing operations in our Clarksville and Columbia, Tennessee facilities
for an aggregate purchase priceundetermined period of $52time. The shutdown is part of our strategy of
reducing costs and optimizing global production capacity and reflects current
graphite electrode market conditions. These operations are our highest cost
graphite electrode manufacturing operations. We expect that the shutdown will
result in annual cost savings of $18 million plus expensesbeginning in 2002 and will enable
us to avoid $9 million in otherwise necessary capital expenditures. We expect to
record restructuring, impairment and related charges estimated to be
$50 million to $60 million in the 2001 second quarter in connection with the
shutdown, including $3 million of $3 million.
Thereafter, the Company acquired additional shares from such Brazilian
shareholderscash costs, primarily for $2 million.
On February 10, 1997, UCAR's Board of Directors approved the purchase of
the shares of EMSA held by its joint venture partner in this 50%-owned
affiliate.severance. The
purchase priceshutdown is expected to be approximately $75 million, plus
expenses. In 1996, EMSA sold approximately 99% of all graphite electrodes
purchased in South Africa (which represents 4% of all graphite electrodes
purchased in the Home Markets), and had net sales of $65 million. The Company
intends to finance the acquisition of the EMSA shares with borrowings under its
revolving credit facility. The Company expects that the purchase will be completed by the end of the second quarter of 1997.
The Company believes that these acquisitions2001 third quarter. These
operations have enabled and will enable
the Company to optimize production of products at various facilities, to better
integrate worldwide operations of these subsidiaries and affiliate with those of
the Company's other subsidiaries, to recognize production efficiencies at
various manufacturing facilities to lower average Company-wide cost of sales and
to better capture and manage cash flow from operations of these subsidiaries and
affiliate.
Focused Factory Project. During 1996, the Company began the construction
of an integrated 'focused factory' at its manufacturing facility in Clarksburg,
West Virginia (the 'Focused Factory Project') at an estimated cost of $16
million. The Focused Factory Project will add additional manufacturing processes
and new technology (developed and tested over the preceding two years by the
Company at its United States technology center) to expand capacity to manufacture 'superfine grain'about 40,000 tons of graphite specialty products on a cost competitive
basis. The Company believes that worldwide industry sales of such products
approach $400 million annually, that demand for these products has grown and
will continueelectrodes
annually. We expect to grow for at least the next several years (primarily for use in
semiconductor, continuous casting, non-ferrous metal extrusion and electrical
discharge machining applications) and that all of the significant Free World
manufacturers of these products are currently operating at or near capacity. The
Company expects that the Focused Factory Project will be completed by the end of
1998.
Acquisitions in Russia and Germany. On November 10, 1996, the Company
purchased 90% of the equity of UCAR Grafit, which operates aincrementally expand graphite electrode businessmanufacturing
capacity at our facilities in Vyazma, Russia. The aggregate investment was $50 million. The
Company anticipates increasing its ownership up to 98% of such equity at an
additional cost of approximately $2 million. On February 1, 1997, the Company,
through a newly-formed 70%-owned subsidiary, UCAR Elektroden, purchased the
graphite electrode business of Elektrokohle Lichtenberg AG ('EKL') in Berlin,
Germany. The 30% minority interest in UCAR Elektroden is held by a private
German company. The
-6-
aggregate purchase price paid by UCAR Elektroden for the EKL assets was
approximately $15 million, consisting of $3 million for equipmentMexico and
approximately $12 million for working capital. UCAR Elektroden and UCAR Grafit
work in tandem with UCAR Elektroden manufacturing green electrodes and UCAR
Grafit baking, pitch impregnating, rebaking and graphitizing those electrodes.
The graphitized electrodes are then returned to UCAR Elektroden for machining
and distribution. Together, UCAR Elektroden and UCAR Grafit have capacity to
produce approximately 17,000 metric tons of finished graphite electrodes.
The Company acquired UCAR Grafit and UCAR Elektroden to expand
geographically. While the Company has been a supplier to Eastern Europe for over
25 years, the Company believesan expected capital
investment of about $3 million.
------------------------
The GRAFTECH logo, GRAFCELL-Registered Trademark-, eGraf-TM-,
GRAFOIL-Registered Trademark-, GRAFGUARD-Registered Trademark-,
GRAFSHIELD-Registered Trademark-, DURABURN-TM-, DURACAST-Registered Trademark-
and DURAPRESS-TM- are our trademarks and trade names. This prospectus also
contains trademarks and trade names belonging to other parties.
We are a Delaware corporation. Our principal executive offices are located
at 3102 West End Avenue, Suite 1100, Nashville, Tennessee 37203, and our
telephone number at that location is (615) 760-8227. We maintain a Web site at
HTTP://WWW.UCAR.COM and our subsidiary, Graftech, maintains a Web site at
HTTP://WWW.GRAFTECH.COM. The information contained on these acquisitions will increase its
penetration of the large and potentially growing graphite electrode markets in
Eastern Europe, Russia and the other countries of the former Soviet Union, and
the Middle East. In addition, many of the EAF steel producers in these markets
consume lower quality graphite electrodes. Accordingly, net sales by UCAR Grafit
and UCAR Elektroden of such types of electrodes are expected to be additive to
sales currently made by the Company, which expects to continue to export ultra
high power graphite electrodes to its existing customer base in these regions.
While the Company plans to use its process technology to improve operating
efficiency and gross profit margins at UCAR Grafit and UCAR Elektroden, the
Company doesWeb sites is not intend to upgrade the quality of their products until demand
for higher quality products in these regions increases. The Company does not
expect that any significant capital expenditures will be required to achieve
such planned improvements.
Acquisition of Cathode Manufacturing Operations. On January 2, 1997, the
Company acquired 70% of the outstanding shares of Carbone Savoie, a wholly-owned
subsidiary of Pechiney S.A., for a purchase price of $33 million. Carbone
Savoie, with facilities in Notre Dame and Venissieux, France, is the leading
worldwide manufacturer of carbon cathodes (with capacity to manufacture
approximately 30,000 metric tons annually). Carbon cathodes are consumed in the
production of aluminum. This acquisition creates an alliance between the Company
and Aluminium Pechiney S.A. (a wholly-owned subsidiary of Pechiney S.A.), one of
the world's leading producers of aluminum and the leading supplier of smelting
technology to the aluminum industry. Aluminium Pechiney S.A. is developing the
use of graphite cathodes (instead of carbon cathodes) in its aluminum smelting
technology, which the Company believes allows for substantial improvement in
process efficiency. The new graphite cathodes will be used by Aluminium Pechiney
S.A. in its own plants and will be marketed to its licensees as well as to third
parties. The Company believes that joint development efforts combining Aluminium
Pechiney S.A.'s technology and the Company's graphite technology and expertise
in high temperature industrial applications should result in important advances.
Carbone Savoie (which had net sales of approximately $80 million in 1996) and
the Company together supplied one-third of the worldwide market for carbon and
graphite cathodes in 1996, according to Company estimates.
BUSINESS STRATEGIES
Restructuring and Re-engineering Projects. The Company has implemented
several successful restructuring and re-engineering projects since the mid-1980s
which have eliminated work, improved operating efficiency and reduced costs. In
connection with these projects, the Company has reduced or eliminated production
at higher cost facilities, maximized production at lower cost facilities,
lowered inventory levels for a given level of forecast sales, significantly
reduced the number of employees worldwide, significantly shortened average
graphite electrode production cycle time, closed manufacturing facilities,
consolidated manufacturing operations and consolidated sales offices. As a
result primarily of these projects, by the end of 1994, the Company had achieved
annual cost savings of approximately $101 million (as compared to 1990) and had
achieved approximately $15 million in additional annual cost savings by the end
of 1996 (as compared to 1994). In January 1995, UCAR's Board of Directors
approved an additional modernization project (the 'Rationalization Project')
designed to close certain high cost manufacturing operations and expand lower
cost manufacturing operations at the Company's North American graphite electrode
plants. The Rationalization Project was completed in July 1996, yielded
approximately $8 million in annual cost savings in 1995 and $20 million in 1996
and is expected to yield $23 million in annual cost savings in 1997 (in each
case, as compared to 1994). Other smaller projects to improve raw materials
technology, enhance equipment technology and upgrade certain production
facilities (collectively, the 'Technology Improvement Projects'), implemented in
1996 or expected
-7-
to be implemented in 1997, are expected to yield approximately $5 million of
additional annual cost savings by the end of 1997 (as compared to 1994). The
Company intends to continue to implement total quality control techniques and
pursue other opportunities for cost savings.
Emphasis on Customer Service. The Company believes that its dedication to
providing customers with a high level of technical service support provides an
important competitive advantage. The Company employs approximately 60 engineers
to provide technical assistance to customers in, among other things, all areas
of EAF operation and design, including equipment evaluation and control, power
utilization and electrode purchase management as well as to provide training in
the use of Company products. Such technical assistance includes periodically
monitoring certain customers' EAF efficiency levels via computer modem. In
addition, the Company employs a global direct sales force in 19 sales offices on
five continents to serve its customers more effectively. The Company intends to
integrate the customer service activities of UCAR Elektroden and UCAR Grafit
with its own customer service activities to enhance their effectiveness. Carbone
Savoie has its own dedicated customer service group which works closely with
Aluminium Pechiney S.A.'s customer service group to maximize use of their
respective products and technologies.
Technical Improvements. The Company operates a graphite and carbon
technology center in the United States dedicated to improving product quality
and manufacturing processes through research and development activities
conducted by approximately 80 technical professionals. These activities are
integrated with the efforts of over 100 engineers at manufacturing facilities
who are focused on improving manufacturing processes. Developments by the
Company include larger and stronger electrodes (increasing the Company's ability
to supply various 'supersized' electrodes), new chemical additives to enhance
raw materials used in graphite electrodes and new applications for water spray
cooling technology and other technological advances, resulting in the
development of safer, more cost effective and more efficient EAF steel and
graphite electrode production. The Company has received recognition for the high
quality of its products under several programs around the world and has been
awarded preferred or certified supplier status by many major steel and other
manufacturing companies. In addition, Carbone Savoie operates a dedicated
cathode technology center in Venissieux, France employing approximately 20
professionals.
RECENT DEVELOPMENTS
Amendments to Credit Facilities. On March 19, 1997, the Company's senior
secured bank credit facilities (the 'Senior Bank Facilities') were amended to
reduce the interest rates on amounts outstanding under the Senior Bank
Facilities, to increase the amount available under the revolving credit facility
to $250 million from $100 million and to change the covenants to allow more
flexibility in uses of free cash flow for acquisitions, capital expenditures and
stock repurchases.
Stock Repurchase Program. On February 10, 1997, UCAR's Board of Directors
authorized a program to repurchase up to $100 million of Common Stock at
prevailing prices from time to time in the open market or otherwise depending on
market conditions and other factors, without any established minimum or maximum
time period or number of shares. UCAR will repurchase 1,300,000 shares of Common
Stock from Blackstone upon the closing of the Offering at the same price per
share at which the Shares are sold to the U.S. Underwriters and the Managers in
the Offering, which repurchase will constitute a
part of such repurchase
program. UCAR intends to finance such repurchases from existing cash balances,
cash flow from operations, short-term borrowings and borrowings under its
revolving credit facility, except that UCAR intends to finance the Blackstone
Share Repurchase primarily from borrowings under the revolving credit facility.
-8-this prospectus.
6
THE OFFERING
Common Stock offeredCOMMON STOCK OFFERED......................... 8,000,000 shares
COMMON STOCK OUTSTANDING AFTER THIS 53,506,002 shares, excluding:
OFFERING...................................
- 8,049,858 shares issuable upon the exercise
of options outstanding under our stock option
and equity incentive plans, with a weighted
average exercise price of $18.05, and
426,400 shares held by us in an employee
benefits trust which are not currently
considered outstanding for calculations of
basic or diluted earnings per share
- up to 1,200,000 shares that may be issued
to the Selling
Stockholders............................... 5,800,000underwriters upon exercise of their
over-allotment option
OVER-ALLOTMENT OPTION........................ 1,200,000 shares
Common Stock offeredUSE OF PROCEEDS.............................. To fund growth and expansion of our Advanced
Energy Technology Division and to repay term
loans under the New Senior Facilities
NYSE SYMBOL.................................. UCR
DIVIDEND POLICY.............................. We have not paid cash dividends on our common
stock and have no intention to do so for sale in:
The U.S. Offering.......................... 4,640,000 shares
The International Offering................. 1,160,000
Total................................... 5,800,000 shares
Common Stock to be outstanding after the
Offering................................... 45,497,777 shares(a)(b)
Use of proceeds.............................. UCAR will not receive any proceeds from the sale of Shares by the
Selling Stockholders.
Dividend policy.............................. It is the current policy of UCAR's Board of Directors to retain
earnings to finance operations, fund acquisitions, repurchase
shares of Common Stock and repay debt. See 'Price Range of Common
Stock and Dividend Policy.'
NYSE symbol.................................. 'UCR'
Risk factors................................. Prospective investors should carefully consider all the information
set forth in this Prospectus and, in particular, should evaluate
the specific factors set forth under 'Risk Factors' before
purchasing any of the Shares.foreseeable future
- ------------------
(a) As of February 28, 1997 and after giving effect to the Blackstone Share
Repurchase.
(b) Excludes 3,313,840 shares reserved for issuance upon exercise of options
outstanding as of February 28, 1997 under UCAR's Management Stock Option
Plan and UCAR's 1996 Mid-Management Equity Incentive Plan.
-9-7
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following summary consolidated financial data at and for the years ended
December 31, 1996, 1997, 1998, 1999 and 2000 have been derived from our audited
annual Consolidated Financial Statements. The following summary consolidated
financial data at and for the three months ended March 31, 2000 and 2001 have
been derived from our quarterly Consolidated Financial Statements, which are
unaudited but in the opinion of our management reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of our results of operations for such periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full fiscal years. You should read this data in conjunction
with the "Selected Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto included elsewhere in this prospectus.
FOR THETHREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, -------------------------------
1994 1995MARCH 31,
---------------------------------------------------- -------------------
1996 ------- ------- -------1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales................................................................. $758 $901 $948sales.................................... $ 948 $ 1,097 $ 947 $ 831 $ 776 $ 195 $ 171
Gross profit.............................................................. 243 345profit(a).............................. 365 411 343 258 216 57 49
Selling, administrative and other expenses................................ 79expenses... 90 115 90
Restructuring costs(a).................................................... -- 30 --103 86 86 24 21
Operating profit.......................................................... 162 189(b)profit (loss)(a)(b)(c)(d)(e)....... 268 Total interest expense....................................................(58) 77 130 111 24 25
Interest expense............................. 61 64 73 84 75 21 19
93 61
Income (loss) before extraordinary charge and cumulative effect of changes in
accounting principles................................................... 100 25(b)items
(a)(b)(c)(d)(e)............................ 145 (160) (30) 42 23 2 3
Extraordinary charge,items, net of tax(c)....................................... -- 37 --
Cumulative effect of changes in accounting
principles..............................................................tax(f)........... -- -- 7 -- 13 13 --
Net income (loss)......................................................... 100 (12)(a)(b) 152(c)(d)(e)............. 145 (160) (37) 42 10 (11) 3
Earnings (loss) per common share:
Basic: Income (loss) before extraordinary
items.................................... $ 3.15 $ (3.49) $ (0.66) $ 0.94 $ 0.51 $ 0.04 $ 0.07
Net income per share(loss).......................... 3.15 (3.49) (0.83) 0.94 0.22 (0.25) 0.07
======= ======= ======= ======= ======= ======= =======
Weighted average common shares outstanding
(IN THOUSANDS)........................... 46,274 45,963 44,972 45,114 45,224 45,116 45,222
======= ======= ======= ======= ======= ======= =======
Diluted: Income (loss) before cumulative effect of change in accounting
principles (Pro forma in 1995).......................................... $1.87(d) $3.00extraordinary
items.................................... $ 3.00 $ (3.49) $ (0.66) $ 0.91 $ 0.50 $ 0.04 $ 0.07
Net income per share...................................................... $3.15(loss).......................... 3.00 (3.49) (0.83) 0.91 0.22 (0.24) 0.07
======= ======= ======= ======= ======= ======= =======
Weighted average common shares outstanding
(Pro forma in 1995) (in
thousands)(e)........................................................... 48,763(IN THOUSANDS)........................... 48,469 45,963 44,972 46,503 45,813 46,183 46,033
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................................. $ 60 $ 53equivalents.................... $ 95 $ 58 $ 58 $ 17 $ 47 $ 15 $ 56
Total assets.............................................................. 778 864 988assets................................. 1,017 1,262 1,137 933 908 892 879
Total debt................................................................ 247 668debt................................... 635 732 804 722 735 736 715
Other long-term obligations.................. 138 313 266 224 209 222 213
Stockholders' equity (deficit)............................................ 192 (167) (2)............... 17 (227) (287) (293) (316) (312) (320)
Working capital.............................. 263 94 203 105 101 170 97
8
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
OTHER DATA:
Gross profit margin....................................................... 32.1% 38.3%margin.......................... 38.5% 37.5% 36.2% 31.0% 27.8% 29.2% 28.7%
Operating profit margin................................................... 21.4 21.0(loss) margin
(a)(b)(c)(d)(e)............................ 28.3 Depreciation.............................................................. $ 39 $ 38(5.3) 8.1 15.6 14.3 12.3 14.6
Depreciation and amortization................ $ 36 $ 49 $ 51 $ 45 $ 43 $ 11 $ 10
Capital expenditures...................................................... 34 65expenditures......................... 62 EBITDA(f)................................................................. 201 24979 52 56 52 9 5
EBITDA(g).................................... 304 (9) 217 212 157 46 35
Cash flow from operations................................................. 174 130provided by operations (excluding
antitrust fines, settlements and
expenses).................................. 172 175 113 144 117 17 19
Cash flow from investing.................................................. (56) (116) (104)used for antitrust fines,
settlements and expenses................... -- (3) (142) (64) (23) (3) (8)
Cash flow from financing.................................................. (105) (18) (26)
Quantity of graphite electrodes sold (thousands of metric tons)(g)........ 196(h) 217(h) 205provided by (used in) operations... 172 172 (29) 80 94 14 11
Cash flow used in investing activities....... (104) (221) (31) (39) (50) (7) (4)
- --------------------------------------------
(a) RepresentsIn 1999, we recorded an $8 million charge for the write-down to lower of
cost or market of certain graphite specialties inventory.
(b) For 1998, includes $86 million of restructuring costs that were recorded
in connection with closing or downsizinggraphite electrode operations atin Canada and
Germany and the consolidation of certain locations as part of the Company's restructuring and
re-engineering projects.corporate administrative
offices. These costs consisted primarily of severance, write-offs of
fixed assets and environmental and other shut-downshutdown costs. (b) Includes,For 1999,
includes a $6 million net reduction in 1995, non-recurring charges related to the Recapitalizationestimate of $8shutdown costs
recorded in 1998. For 2000, includes: a $6 million related to payments for a senior subordinated credit facilitycharge in connection
with the restructuring of our graphite specialties business in the 2000
first quarter, $4 million of which was available but not usedreversed in the 2000 third quarter
and payments under the Company's Long Term
Incentive Compensation Plan$2 million balance of which consisted primarily of severance; and
non-recurring expenses related toa $4 million charge in connection with a corporate restructuring
involving workforce reduction in the Initial Offering (as defined herein)2000 fourth quarter, which consisted
primarily of $18severance.
(c) Includes impairment losses on long-lived assets in the amount of
$60 million associated with our Russian assets in 1998, in the amount of
$35 million associated with our graphite specialties assets in 1999, and
in the amount of $3 million associated with certain cathode assets
located at our Columbia, Tennessee facility in 2000.
(d) For 1997, includes a pre-tax charge of $340 million for compensation
expense,estimated
potential liabilities and expenses in connection with antitrust
investigations and related tolawsuits and claims.
(e) Includes a charge of $13 million in 1999 for estimated liabilities and
expenses in connection with securities class action and stockholder
derivative lawsuits, $1 million of which was reversed in 2000.
(f) The 1998 extraordinary item and the accelerated vesting of performance stock options and
restricted matching stock.
(c) Resulted2000 extraordinary item resulted
from early extinguishment of debt in connection with the Redemption
(as defined herein)our debt
refinancings and the Refinancing (as defined herein).
(d) For unaudited pro forma net income per share, historical net income (loss)
has been adjusted assuming that the Recapitalization, the Initial Offering,
the Redemption and the Refinancing had occurred as of January 1, 1994.
Historical net income (loss) per share has been omitted as the historical
capitalization of the Company is not indicative of the Company's current
capital structure.
(e) Reflects Common Stock and Common Stock equivalents outstanding after the
Initial Offering, including Common Stock equivalents calculated in
accordance with the 'treasury stock method,' wherein the net proceeds from
the exercise of Common Stock equivalents are assumed to be used for the
repurchase of shares of Common Stock at the average price for such year.
(f)recapitalizations.
(g) EBITDA, for this purpose, means operating profit (loss), plus
depreciation, amortization, the impairment losses on long-lived assets
and theinventory write-down, in each case as described above, and that
portion of restructuring costscharges (credits) applicable to fixednon-cash asset
write-offs. The amount of restructuring costscharges (credits) applicable to
fixednon-cash asset write-offs for 1995 was $22 million. The Company believesa charge of $29 million in 1998. We believe
that EBITDA is generally accepted as providing useful information
regarding a company's ability to incur and service and/or incur debt. EBITDA should
not be considered in isolation or as a substitute for net income, cash
flows from continuing operations or other consolidated income or cash
flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. (g) ExcludesOur
method for calculating EBITDA may not be comparable to methods used by
other companies and is not the same as the method for calculating EBITDA
under the New Senior Facilities.
9
RISK FACTORS
AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE PURCHASING OUR COMMON STOCK.
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES FACING US.
ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE
CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR FINANCIAL CONDITION, RESULTS OF
OPERATIONS, CASH FLOWS OR BUSINESS. IF ANY OF THE FOLLOWING RISKS ACTUALLY
OCCUR, OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS, CASH FLOWS OR BUSINESS
COULD BE HARMED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
WE ARE DEPENDENT ON THE GLOBAL STEEL AND OTHER METALS INDUSTRIES. OUR
RESULTS OF OPERATIONS MAY DETERIORATE DURING GLOBAL AND REGIONAL ECONOMIC
DOWNTURNS. Our principal products, graphite electrodes, which accounted for
about 68% of our total net sales in 2000, are sold primarily to the electric arc
furnace steel industry. Many of our other products are sold primarily to other
metals industries. These are global basic industries, and customers in these
industries are located in every major geographic market. As a result, our
customers are affected by EMSA,changes in global and regional economic conditions.
This, in turn, affects demand for, and prices of, our products sold to the
metals industries. Accordingly, we are directly affected by changes in global
and regional economic conditions.
In addition, demand for our products sold to the metals industries may be
adversely affected by improvements in those products as well as in the
manufacturing operations of customers which aggregated 24,000 metric
tons, 27,000 metric tons and 26,000 metric tons in 1994, 1995 and 1996,
respectively.
(h) The quantityreduce the rate of consumption of
our products for a given level of production by our customers. We estimate that
specific consumption declined, at decreasing rates of decline, from about 6.4
kilograms of graphite electrodes per metric ton of steel produced in 1974 to
about 2.5 kilograms per metric ton in 2000.
As a result of global and regional economic conditions, these improvements
and other factors, demand for our graphite electrodes and some of our other
products sold to the metals industries has fluctuated significantly and prices
have declined since 1998. These circumstances reduced our net sales and net
income.
Throughout 1998 and the 1999 first quarter, electric arc furnace steel
production declined as a result of adverse global and regional economic
conditions. A recovery began in the first1999 second quarter of 1994 was
impacted by Customer Buy-Ins (as defined herein) duringthat lasted through
mid-2000. Beginning in mid-2000, electric arc furnace steel production began to
weaken in North America. The weakening became more severe in the 2000 fourth
quarter and is expected to continue at least through the end of 19932001, and may
impact other regional economies. These fluctuations in advanceelectric arc furnace
steel production resulted in corresponding fluctuations in demand for graphite
electrodes. Overall pricing weakened throughout most of this period.
In 1998 and 1999, demand and prices for most of our other products sold to
the metals industries were adversely affected by the same global and regional
economic conditions that affected graphite electrodes. In the 1999 second
quarter, however, worldwide demand by customers for many of these products began
to gradually recover. During 2000, demand for most of these products as a group
was relatively stable. Pricing, however, did not strengthen. The circumstances
that impacted demand and prices for these products in 2000 are expected to
continue in 2001.
In light of, among other things, the weakness in electric arc furnace steel
production in North America, we believe that worldwide electric arc furnace
steel production will decline in 2001 as compared to 2000. We expect that demand
for our graphite electrodes will decline in 2001 as compared to 2000 due to the
decline in electric arc furnace steel production and our efforts to implement
local currency selling price increases effectiveincreases.
We cannot assure you that the electric arc furnace steel industry will
continue to be the higher growth sector of the steel industry or that other
metals industries served by us will experience continued stability or growth or
recover from current economic conditions affecting them, as the case may be.
Accordingly, we cannot assure you that there will be stability or growth in
January 1994, and the
quantitydemand for or
10
prices of graphite electrodes or our other products sold to the metals
industries. An adverse change in global or certain regional economic conditions
could materially adversely affect us.
REVENUE AND EARNINGS GROWTH OF OUR ADVANCED ENERGY TECHNOLOGY DIVISION
DEPENDS PRIMARILY ON SUCCESSFULLY DEVELOPING, INTRODUCING AND SELLING GRAPHITE
AND CARBON TECHNOLOGY AND PRODUCTS FOR EMERGING APPLICATIONS ON A PROFITABLE
BASIS. IF WE ARE NOT SUCCESSFUL, WE WILL NOT ACHIEVE OUR PLANNED
GROWTH. Revenue and earnings growth of our Advanced Energy Technology Division
depends on successful and profitable development and sale of:
- materials and components for PEM fuel cells and fuel cell systems,
- electronic thermal management products, including thermal interface
products and designs, heat spreaders, heat sinks and heat pipes, for
computer, communications, industrial, military, office equipment and
automotive electronic applications,
- fire retardant products for transportation applications and building and
construction materials applications,
- industrial thermal management products for high temperature process
applications, and
- conductive products for batteries and supercapacitor power storage
applications.
Successful and profitable commercialization of technology and products is
subject to various risks, including risks beyond our control, such as:
- the possibility that we may not be able to develop viable products or,
even if we develop viable products, that our products may not gain
commercial acceptance,
- the possibility that commercially accepted products could be subsequently
displaced by other technologies,
- the possibility that, even if our products are incorporated in new
products of our customers, our customers' new products may not become
viable or commercially accepted, or may be subsequently displaced,
- the possibility that a mass market for commercially accepted products, or
for our customers' products which incorporate our products, may not
develop,
- restrictions under our agreement with Ballard on sales of our fuel cell
materials and components to, and collaboration with, others, and
- failure of our customers, including Ballard, to purchase our products in
the first quarter of 1995 wasquantities that we expect.
These risks could be impacted by Customer Buy-Insadoption of new laws and regulations,
changes in advancegovernmental programs, failure of price increases effectivenecessary supporting systems (such
as a fuel delivery infrastructure for fuel cells) to be developed, and consumer
perceptions about costs, benefits and safety.
OUR FINANCIAL CONDITION COULD SUFFER IF WE EXPERIENCE UNANTICIPATED COSTS AS
A RESULT OF ANTITRUST INVESTIGATIONS, LAWSUITS AND CLAIMS. Since 1997, we have
been subject to antitrust investigations, lawsuits and claims. We recorded a
pre-tax charge of $340 million against results of operations for 1997 as a
reserve for estimated potential liabilities and expenses in April 1995.
-10-
RISK FACTORS
Prospective investors should consider carefullyconnection with
antitrust investigations and related lawsuits and claims. We cannot assure you
that remaining liabilities and expenses in connection with antitrust
investigations, lawsuits and claims (including any fine which may be assessed by
the following factors in
addition to other information included or incorporated by reference in this
Prospectus before purchasing anyantitrust authority of the Shares.European Union) will not materially exceed the
remaining uncommitted balance of the reserve or that the timing of payment
thereof will not be sooner than anticipated. At March 31, 2001, the remaining
uncommitted balance of the reserve was about $44 million. Our insurance has not
and will not materially offset liabilities that have or may become due in
connection with antitrust investigations or related lawsuits or claims.
If such liabilities or expenses exceed the remaining uncommitted balance of
the reserve or if the timing of payment thereof is sooner than anticipated, we
may not be able to comply with the financial
11
covenants under the New Senior Facilities. A failure to so comply, unless waived
by the lenders thereunder, would be a default thereunder. This would permit the
lenders to accelerate the maturity of substantially all of our debt. It would
also permit them to terminate their commitments to extend credit under our
revolving credit facility. This would have an immediate material adverse effect
on our liquidity. If we were unable to repay our debt to the lenders, we could
be forced to take the actions described in the three following risk factors and
the lenders could proceed against the collateral securing the New Senior
Facilities and exercise all other rights available to them. We cannot assure you
that we will be able to obtain any such waiver on acceptable terms or at all.
WE ARE HIGHLY LEVERAGED AND OUR SUBSTANTIAL LEVERAGEDEBT AND DEBT SERVICE REQUIREMENTS
The Company isOTHER OBLIGATIONS COULD
LIMIT OUR FINANCIAL RESOURCES, OPERATIONS AND ABILITY TO COMPETE AND MAY MAKE US
MORE VULNERABLE TO ADVERSE ECONOMIC EVENTS. We are highly leveragedleveraged. We also
have substantial obligations in connection with antitrust investigations,
lawsuits and has negative stockholders' equity.claims. At DecemberMarch 31, 1996, the Company2001, we had an aggregatetotal debt of $635$715 million of outstanding
indebtedness and a
stockholders' deficit of $2$320 million. The Company's
indebtedness may increase in connectionA majority of our debt has variable
interest rates. We are dependent on our revolving credit facility, the
availability of which depends on continued compliance with the implementation of its stock
repurchase programfinancial
covenants under the New Senior Facilities, for liquidity.
Our high leverage and future acquisitions.
The Company's high degree of leverageour antitrust related obligations could have important
consequences, to
investors, including the following:
(i) the Company's- our ability to restructure or refinance our debt or obtain additional debt
or equity financing for payment of these obligations, or for working
capital, capital expenditures, acquisitions, joint ventures, stock
repurchases or other general corporate purposes or other purposes, may be impaired in the
future; (ii)future,
- a substantial portion of the Company'sour cash flow from operations must be dedicated
to debt service and payment of these antitrust related obligations,
thereby reducing the funds available to the Companyus for other purposes; (iii)purposes,
- an increase in interest rates could result in an increase in the Companyportion
of our cash flow from operations dedicated to servicing our debt, in lieu
of other purposes,
- we may behave substantially more leveragedleverage and obligations in connection with
antitrust investigations, lawsuits and claims than certain of itsour
competitors, which may place the Companyus at a competitive disadvantage;disadvantage, and
(iv) the Company's substantial degree of- our leverage and our antitrust related obligations may hinder itsour ability
to adjust rapidly to changing market conditions or other events and could make
itus more vulnerable to insolvency, bankruptcy or other adverse consequences
in the event of a downturn in general or certain regional economic
conditions or its
business.
The Company'sour business or in the event that these obligations are
greater than expected.
OUR ABILITY TO SERVICE OUR DEBT AND MEET OUR OTHER OBLIGATIONS DEPENDS ON
CERTAIN FACTORS BEYOND OUR CONTROL. Our ability to service or to refinance itsour debt will dependand meet
our other obligations as they come due is dependent on itsour future financial and
operating performance. This performance which, in turn, is subject to prevailingvarious factors, including
certain factors beyond our control such as, among other things, changes in
global and regional economic conditions, developments in antitrust
investigations, lawsuits and to certain financial, businessclaims involving us, changes in our industry,
changes in interest or currency exchange rates and inflation in raw materials,
energy and other factors beyond its control.costs.
If the Company'sour cash flow and capital resources are insufficient to fund itsenable us to
service our debt serviceand meet these obligations the Company mayas they become due, we could be
forced toto:
- reduce or delay planned capital expenditures,
- sell assets or businesses,
- limit or discontinue, temporarily or permanently, business plans,
activities or operations,
- obtain additional equity capital or restructure its debt. While substantially all minimum required
principal payments due on such debt through the end of the second quarter of
1998 have been prepaid, there can be no assurance that the Company's results of
operations, cash flow and capital resources will be sufficient to pay the
interest on such debt or subsequent required principal payments. In the absence
of such results of operations, cash flow and resources, the Company could face
substantial liquidity problems and might be required to dispose of material
assetsequity financing, or
operations to meet its debt service and other obligations. There can
be no assurance12
- restructure or refinance debt.
We cannot assure you as to the timing of such salesactions or the amount of
proceeds which
the Companythat could realize therefrom. In addition, since the Company's
obligations under the Senior Bank Facilities bear interest at floating rates, an
increase in interest rates could adversely affect, among other things, the
Company's abilitybe realized from such actions. Accordingly, we cannot assure
you that we will be able to meet itsour debt service obligations.
GRAPHITE ELECTRODE INDUSTRY RISKS; DECLINE IN SPECIFIC CONSUMPTION
The Company's revenues are currently derived primarily from the sale of
graphite electrodes. Growth in EAF steel production through the 1970s led to an
over-expansion in capacity for the manufacture of graphite electrodes. Since
1979, there has been a significant decline in Specific Consumption of graphite
electrodesand other obligations as a result of technological improvements in EAF steelmaking
processes and equipment design and in graphite electrodes. The over-expansion in
capacity and the decline in Specific Consumption resulted in significant
downward pressure on graphite electrode pricing. From 1985 to mid-1992, there
was a significant consolidation in the number of manufacturers (which has
continued at a more moderate pace since that time) and a reduction in
industry-wide capacity. In addition, during that period, demand for graphite
electrodes became relatively stable as the decrease in Specific Consumption was
offset by increased levels of EAF steel production. The Company believes that,
since mid-1992, increased levels of EAF steel production have more than offset
the decrease in Specific Consumption. The Company believes that global demand
for graphite electrodes will increase over the long-term at an average rate of
1% to 2% per year. Although the Company believes that the decline in Specific
Consumption will continue at a more gradual rate, there can be no assurance that
such will be the case. If, for any reason, demand for graphite electrodes were
to decline significantlythey
become due or manufacturing capacity were to materially exceed
demand, the Company would be materially adversely affected. In addition, the
graphite electrode industry is capital intensive.
-11-
DEPENDENCE ON EAF STEEL INDUSTRY
The Company's products are sold primarily to the EAF steel industry.
Although EAF steel production has experienced only two relatively minor
downturns in the past 20 years, the steel industry generally is cyclical and
experiences significant fluctuations in profits based on numerous factors. Sales
of the Company's principal products have historically been somewhat adversely
affected by weakness in the steel industry. Although worldwide EAF steel
production continues to experience growth and worldwide demand for steel
generally has improved over the past several years, there can be no assurance
that growth in EAF steel production will continue or that conditions in the
steel industry will remain favorable.otherwise.
WE HAVE RESTRICTIVE SECURED DEBT COVENANTS THAT COULD SIGNIFICANTLY AFFECT
THE WAY IN WHICH WE CONDUCT OUR BUSINESS. The New Senior Bank Facilities contain a
number of significant covenants that, among other things, significantly restrict theour ability of the Company
to dispose of assets, incur additional indebtedness, repay or refinance other
indebtedness or amend other debt instruments, create liens on assets, enter into
leases, make investments or acquisitions, engage in mergers or consolidations,
make capital expenditures or engage in certain transactions with subsidiaries
and affiliates, and that otherwise restrict corporate activities.
In addition, under the Senior Bank
Facilities, the Company isWe are also required to comply with specified financial ratios
and tests,covenants, including
minimum interest coverage and maximum leverage ratios. The
indenture among UCAR, GlobalIn addition, we cannot
borrow under our revolving credit facility:
- if the aggregate amount of our payments made (excluding certain imputed
interest) and the United States Trust Company of New York, as
Trustee (the 'Subordinated Note Indenture'), relating to the 12% senior
subordinated notes due 2005 (the 'Subordinated Notes') issued by Global and
guaranteed by UCARadditional reserves created in connection with antitrust,
securities and stockholder derivative investigations, lawsuits and claims
exceed $340 million by more than $130 million (which $130 million is
reduced by the Recapitalization also containsamount of certain restrictive convenants.
The Companydebt incurred by us that is not incurred
under the New Senior Facilities), or
- if the additional borrowings would cause us to breach the financial
covenants.
Further, most of our assets are pledged to secure repayment of the New
Senior Facilities.
We are currently in compliance with the covenants contained in the New
Senior Bank Facilities and the Subordinated Note Indenture.Facilities. However, itsour ability to continue to comply may be affected by
events beyond itsour control including
prevailing economic, financial and industry conditions.as described above. The breach of any of suchthese
covenants, could result inunless waived by the lenders thereunder, would be a default under the
New Senior Bank Facilities, and/or
the Subordinated Note Indenture, which would permit the senior lenders or the
holders of the Subordinated Notes to declare all amounts borrowed thereunder to
be due and payable, together with accrued and unpaid interest, and the
commitments of the senior lenders to make further extensionsaccelerate the maturity
of substantially all of our debt. It would also permit them to terminate their
commitments to extend credit under the
Senior Bank Facilities could be terminated.our revolving credit facility. This would
have an immediate material adverse effect on our liquidity. If the Companywe were unable to
repay its indebtednessour debt to its seniorthe lenders, suchwe could be forced to take the actions described
in the preceding risk factor and the lenders could proceed against the
collateral securing the New Senior Facilities and exercise all other rights
available to them. We cannot assure you that we will be able to obtain any such
indebtedness.waiver on acceptable terms or at all.
WE ARE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS The Company operates manufacturingIN MULTIPLE
COUNTRIES. In 2000, about 69% of our net sales were derived from sales, and, at
December 31, 2000, 71% of our total property, plant and equipment and other
facilities in 19 countries on
five continents and sells its products in over 70 countries. Net sales of the
Company's productslong-lived assets were located, outside the United States in 1996 totalled approximately $642
million, representing approximately 68% of the Company's net sales in 1996.U.S. As a result of itsour
international operations, the Company iswe are subject to risks associated with operating in
foreignmultiple countries, includingincluding:
- currency devaluations and fluctuations in currency exchange rates,
including impacts of transactions in various currencies, translation of
various currencies into dollars for U.S. reporting purposes, and impacts
on results of operations due to the fact that costs of our foreign
operations for our principal raw material (petroleum coke) are incurred in
dollars even though their products are sold in other currencies,
- imposition of or increases in customs duties and other tariffs,
- imposition of or increases in currency exchange controls, including
imposition of or increases in limitations on conversion of foreignvarious
currencies into dollars or euros or remittance of dividends, andinterest or
principal payments or other payments by foreign subsidiaries,
- imposition of or increase ofincreases in revenue, income or earnings taxes and
withholding and other taxes on remittances and other payments by
foreign subsidiaries,
hyperinflation in
certain foreign countries and13
- imposition or increase ofincreases in investment restrictions and other restrictions
or requirements by foreignnon-U.S. governments, and
in the case of
operations in Russia,- nationalization and other risks which could result from a change in
government. Although such risks have not had a material adverse effect
on the Company within the past decade, no assurance can be givengovernment or other political, social or economic instability.
We cannot assure you that such risks will not have a material adverse effect
on the Companyus in the future.
SEASONALITY; FLUCTUATIONS IN QUARTERLYIn general, our results of operations and financial condition are affected
by the inflation in each country in which we have a manufacturing facility. We
maintain operations in Brazil, Russia and Mexico, countries which have had in
the past, and may have now or in the future, highly inflationary economies,
defined as cumulative inflation of about 100% or more over a three-calendar year
period. We cannot assure you that future increases in our costs will not exceed
the rate of inflation or the amounts, if any, by which we may be able to
increase prices for our products.
OUR ABILITY TO GROW AND COMPETE EFFECTIVELY DEPENDS ON PROTECTING OUR
INTELLECTUAL PROPERTY, INCLUDING THAT RELATING TO FUEL CELL POWER GENERATION,
ELECTRONIC THERMAL MANAGEMENT AND OTHER IDENTIFIED OPPORTUNITIES. OUR FAILURE TO
PROTECT OUR INTELLECTUAL PROPERTY COULD ADVERSELY AFFECT OUR FUTURE REVENUE
GROWTH AND PROFITABILITY. Failure to protect our intellectual property may
result in the loss of the exclusive right to use our technologies. We rely on
patent, trademark and trade secret law to protect our intellectual property. Our
issued patents relating to fuel cell power generation and electronic thermal
management applications, which we believe are particularly important to our
future revenue growth and profitability, will expire between 2004 and 2019. Some
of our intellectual property is not covered by any patent or patent application.
Our patents are subject to complex factual and legal considerations, and there
can be uncertainty as to the validity, scope and enforceability of any
particular patent. Accordingly, we cannot assure you that:
- any of the U.S. or foreign patents owned by us, or other patents that
third parties may license to us in the future, will not be circumvented,
challenged, invalidated or licensed to others, or
- any of our pending or future patent applications will be issued with the
breadth of claim coverage sought by us, if at all.
In addition, effective patent, trademark and trade secret protection may be
unavailable, limited or not applied for in some foreign countries in which we
operate.
Our ability to maintain our proprietary intellectual property may be
achieved in part by prosecuting claims against others whom we believe are
infringing upon our rights and by defending against claims of intellectual
property infringement brought by others against us. Our involvement in
intellectual property litigation could result in significant expense to us,
adversely affecting the development of sales of the related products and
diverting the efforts of our technical and management personnel, regardless of
the outcome of such litigation.
We also seek to protect our proprietary intellectual property, including
intellectual property that may not be patented or patentable, in part by
confidentiality agreements and, if applicable, inventors' rights agreements with
our strategic partners and employees. We cannot assure you that these agreements
will not be breached, that we will have adequate remedies for any breach or that
such partners or employees will not assert rights to intellectual property
arising out of these relationships.
If necessary or desirable, we may seek licenses to intellectual property of
others. However, we can give no assurances that we will obtain such licenses or
that the terms of any such licenses will be acceptable to us.
The failure to obtain a license from a third party for their intellectual
property could cause us to incur substantial liabilities and to suspend the
manufacture or shipment of products or our use of processes requiring the use of
such intellectual property.
OUR CURRENT AND FORMER MANUFACTURING OPERATIONS ARE SUBJECT TO INCREASINGLY
STRINGENT HEALTH, SAFETY AND ENVIRONMENTAL REQUIREMENTS. We use and generate
hazardous substances in our manufacturing
14
operations. In addition, both the properties on which we currently operate and
those on which we have ceased operations are and have been used for industrial
purposes. Further, our manufacturing operations involve risks of personal injury
or death. We are subject to increasingly stringent environmental, health and
safety laws and regulations relating to our current and former properties and
neighboring properties and other current operations. These laws and regulations
provide for substantial fines and criminal sanctions for violations and
sometimes require the installation of costly pollution control or safety
equipment or costly changes in operations to limit pollution and decrease the
likelihood of injuries. In addition, we may become subject to potentially
material liabilities for the investigation and cleanup of contaminated
properties and to claims alleging personal injury or property damage resulting
from exposure to or releases of hazardous substances or personal injury as a
result of an unsafe workplace. In addition, noncompliance with or stricter
enforcement of existing laws and regulations, adoption of more stringent new
laws and regulations, discovery of previously unknown contamination or
imposition of new or increased requirements could require us to incur costs or
become the basis of new or increased liabilities that could be material.
WE ARE DEPENDENT ON SUPPLIES OF RAW MATERIALS AND ENERGY AT AFFORDABLE
PRICES. OUR RESULTS OF OPERATIONS COULD DETERIORATE IF THAT SUPPLY IS
SUBSTANTIALLY DISRUPTED FOR AN EXTENDED PERIOD. We purchase raw materials and
energy from a variety of sources, typically under short term contracts or on the
spot market, in each case at fluctuating prices. The Company's net salesavailability and price of
raw materials and energy may be subject to curtailment or change due to:
- limitations which may be imposed under new legislation or governmental
regulations,
- suppliers' allocations to meet demand of other purchasers during periods
of shortage (or, in the case of energy suppliers, extended cold weather),
- interruptions in production by suppliers, and
- market and other events and conditions.
Petroleum products, including petroleum coke, our principal raw material,
have been subject to significant price fluctuations and, beginning in mid-2000,
market prices of petroleum coke have increased. Over the past several years, we
have mitigated the effect of such price increases on our results of operations
through a combination of improved operating efficiency, permanent on-going cost
savings and passing such price increases on to customers. However, we cannot
assure you that such measures will successfully mitigate future increases in the
price of petroleum coke or other raw materials or energy. A substantial increase
in raw material or energy prices which cannot be mitigated or passed on to
customers or a continued interruption in supply, particularly in the supply of
petroleum coke, would have a material adverse effect on us.
In April 2001, our major supplier of petroleum coke experienced an explosion
at one of its two coke plants and placed its coke customers on allocation until
the end of July 2001. We have not been materially adversely affected by this
event to date and do not expect to be so affected in the future unless supply of
coke from that plant continues to be interrupted for longer than expected.
OUR RESULTS OF OPERATIONS COULD DETERIORATE IF OUR MANUFACTURING OPERATIONS
WERE SUBSTANTIALLY DISRUPTED FOR AN EXTENDED PERIOD. Our manufacturing
operations are subject to disruption due to extreme weather conditions, floods
and similar events, major industrial accidents, strikes and lockouts, and other
events. We cannot assure you that no such events will occur. If such an event
occurs, it could have a material adverse effect on us.
OUR RESULTS OF OPERATIONS FOR ANY QUARTER ARE NOT NECESSARILY INDICATIVE OF
OUR RESULTS OF OPERATIONS FOR A FULL YEAR. Sales of graphite electrodes and
other products fluctuate from quarter to quarter due to such factors as changes
in global and regional economic conditions, changes in competitive conditions,
scheduled plant shut downsshutdowns by customers, national vacation practices, changes in
customer production schedules in response to seasonal changes in energy costs,
weather conditions, strikes and work stoppages at customer plants and changes in
customer order patterns in response to the announcement
15
of price increases. The Company
-12-
hasWe have experienced, and expectsexpect to continue to experience,
volatility with respect to demand for graphite electrodes in certain geographic areas as general
economic conditions in such areas fluctuate. These factors tend to affect the
Company's quarterly as well as annual results of operations. In addition, in the
past, typically during the period prior to the effective date of a price
increase, customers tended to buy additional quantitiesand prices of graphite electrodes at the then lower pricing ('Customer Buy-Ins'), which added to the Company's net
sales during that period. During the period following the effective date of a
price increase, customers tended to use those additional quantities before
placing further orders, which reduced the Company's net sales during that
period.and
other products, both globally and regionally. Accordingly, results of operations
for any quarter are not necessarily indicative of the results of operations for
a full yearyear.
THE GRAPHITE AND CARBON INDUSTRY IS HIGHLY COMPETITIVE. OUR GRAPHITE POWER
SYSTEMS DIVISION'S MARKET SHARE, NET SALES OR NET INCOME COULD DECLINE DUE TO
VIGOROUS PRICE AND OTHER COMPETITION. Competition in the graphite and carbon
products industry is based primarily on price, product quality and customer
service. Graphite electrodes, in particular, are subject to rigorous price
competition. Price increases by us or otherwise.price reductions by the Graphite Power
Systems Division's competitors, decisions by us with respect to maintaining
profit margins rather than market share, changes in the desirability or
necessity of entering into long term supply contracts with customers, or other
competitive or market factors or strategies could adversely affect the Graphite
Power Systems Division's market share, net sales or net income. Competition
could prevent implementation of price increases or could require price
reductions or increased spending on research and development, marketing and
sales that could adversely affect the Graphite Power Systems Division's results
of operations, cash flows or financial condition.
WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY IMPLEMENT ANY STRATEGIC
ALLIANCES FOR ANY OF OUR BUSINESSES. One of our key strategies is establishment
and expansion of strategic alliances to reduce our average cost of sales, expand
our share of various geographic markets, expand our product lines or technology,
or strengthen our businesses. We cannot assure you that any transaction will be
completed or as to the timing or terms of any transaction that may be completed.
WE MAY NOT BE SUCCESSFUL IN THE LITIGATION AGAINST OUR FORMER PARENTS
INITIATED BY US. We have initiated litigation against our former parents.
Successful prosecution of this litigation is subject to risks, including:
- failure to successfully defend against motions to dismiss and other
procedural motions prior to trial,
- failure to successfully establish our theories of liability and damages or
otherwise prove our claims at trial,
- successful assertion by the defendants of substantive defenses to
liability at trial or on appeal, and
- successful assertion by the defendants of counterclaims or cross claims at
trial or on appeal.
We cannot assure you as to the ultimate outcome of the litigation, including
the possibility, timing or amount of any recovery of damages by us or any
liability we may have in connection with any counterclaims or cross claims. In
orderaddition, we cannot assure you as to mitigatethe possibility, timing or amount of any
settlement or the legal expenses to be incurred by us or as to the effect of Customer Buy-Insthe
lawsuit on period-to-periodmanagement's focus and time available for our on-going operations. We
expect to incur $10 million to $20 million in legal expenses to pursue this
lawsuit from the date of filing of the complaint through trial. As of March 31,
2001, we had incurred about $4 million of these legal expenses.
THERE ARE PROVISIONS IN SOME OF OUR IMPORTANT DOCUMENTS THAT COULD HAVE THE
EFFECT OF PREVENTING A CHANGE IN CONTROL OF UCAR. UCAR's Certificate of
Incorporation and By-Laws contain provisions concerning voting, issuance of
preferred stock, removal of officers and directors and other matters that may
have the effect of discouraging, delaying or preventing a change in control of
UCAR. In addition, UCAR's Board of Directors has adopted a stockholder rights
plan that may have the same effect. Further, the New Senior Facilities restrict
certain events that would constitute a change in control and provide that
certain events which would constitute a change in control would also constitute
an event of default. We cannot assure you that we will have the financial
resources necessary to repay the New Senior Facilities upon the occurrence of
such an event of default.
OUR STOCK PRICE MAY BE VOLATILE DUE TO THE NATURE OF OUR BUSINESS, WHICH
COULD AFFECT THE SHORT-TERM VALUE OF YOUR INVESTMENT. The stock market has from
time to time experienced extreme price and volume
16
fluctuations. Many factors may cause the market price for our common stock to
decline or fluctuate, perhaps substantially, following this offering, including:
- failure to meet product development and commercialization goals,
- quarterly fluctuations in our results of operations,
- net sales and results of operations failing to meet the Companyexpectations of
securities analysts or investors,
- downward revisions in securities analysts' revenue or earnings estimates
or changes in general market conditions,
- technological innovations or strategic actions by our competitors,
- speculation in the press or investor perception concerning our industry or
our prospects, or
- general economic factors unrelated to our performance.
The stock markets in general have experienced extreme volatility that has
begun announcingoften been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the market price increasesof our common
stock.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
could be involved in a securities class action litigation in the future. Such
litigation could result in substantial costs and a diversion of management's
attention and resources.
FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET MAY DEPRESS OUR STOCK
PRICE. After this offering, 53,506,002 shares (54,706,002 shares, if the
over-allotment option is exercised in full) of our common stock will be
outstanding (excluding 426,400 shares held by us in an employee benefits trust
which are not currently considered outstanding for calculations of basic or
diluted earnings per share) and we will have reserved 11,000,000 shares of our
common stock for issuance pursuant to our stock option and equity incentive
plans (and have outstanding options to purchase an aggregate of 8,049,858 of
those shares thereunder). All of the outstanding shares of our common stock, the
shares of our common stock to be sold in this offering and any shares of our
common stock issued under our stock option and equity incentive plans will be
freely transferable by persons other than our affiliates. The outstanding shares
of our common stock held by, and any shares of our common stock issued under our
stock option and equity incentive plans to, our affiliates are restricted
securities and may not be sold other than pursuant to an effective registration
statement or Rule 144 or another exemption from registration under the
Securities Act. We, subject to certain limitations, and certain of our directors
and executive officers have agreed that, for a period of 90 days after the date
of this prospectus, we and they will not sell or otherwise dispose of any shares
of our common stock without the prior written consent of J.P. Morgan
Securities Inc. We have filed and intend, consistent with past practice, to file
with the SEC registration statements relating to our stock option and equity
incentive plans. No prediction can be made as to the effect, if any, that future
sales of shares, or the availability of shares for future sales, will have on
the market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock in the public market, or the perception
that such sales could occur, could adversely affect prevailing market prices for
our common stock and could impair our ability to raise capital through an
offering of our equity securities. The market price of our common stock could
decline as a result of sales by our existing stockholders of a large number of
shares of our common stock in the market after this offering, or the perception
that these sales may occur. These sales might also make it more difficult for us
to sell equity securities in the future and at different timesa price that we deem appropriate.
WE WILL EXPERIENCE IMMEDIATE DILUTION IN EARNINGS PER SHARE AS A RESULT OF
THIS OFFERING. In addition, to the extent that outstanding options to purchase
our common stock are exercised, there will be further dilution in different
geographic regions.
DEPENDENCE ON RAW MATERIALSour earnings
per share.
OUR ABILITY TO PAY CASH DIVIDENDS AND ENERGY SUPPLIESREPURCHASE OUR COMMON STOCK IS
RESTRICTED. The Company purchasesNew Senior Facilities substantially restrict the payment of
cash dividends and repurchase of our common stock by us.
17
USE OF PROCEEDS
The net proceeds to us from this offering are estimated to be about $
million (about $ million if the underwriters' over-allotment option is
exercised in full), assuming an offering price of $ per share and after
deducting underwriting discounts, commissions and other expenses payable by us.
We intend to use the net proceeds to us from this offering as follows:
- about 40% for funding growth and expansion of our Advanced Energy
Technology Division, including growth and expansion through acquisitions,
and
- about 60% for repayment of term loans under the New Senior Facilities.
We intend to use net proceeds allocated to our Advanced Energy Technology
Division for funding:
- development of products for the fuel cell power generation market,
- development of new components, including heat sinks, heat spreaders and
heat pipes, for computer, communications, industrial, military, office
equipment, automotive electronic and other applications, and
- development and commercialization of conductive products for batteries and
supercapacitor power storage applications.
Repayments of term loans, consisting of Tranche A Term Loans and Tranche B
Term Loans, are applied, first, to the repayment of scheduled maturities due in
the next twelve months (an aggregate of $42 million due after June 30, 2001 and
on or before June 30, 2002) and, then, proportionately to repayment of all
remaining scheduled maturities, except that the lenders under Tranche B Term
Loans have the right to not have their Tranche B Term Loans repaid until all
Tranche A Term Loans have been repaid in full. At March 31, 2001, the annual
interest rate on the Tranche A Term Loans was 7.9% and on the Tranche B Term
Loans was 9.4%. The Tranche A Term Loans mature in December 2005 and Tranche B
Term Loans mature in December 2007.
We do not currently have any pending commitments or agreements to make any
acquisitions. We intend to use the net proceeds to us from exercise of the
underwriters' over-allotment option, if any, for the same purposes as described
above. Pending their use, the net proceeds to us from this offering will be used
to reduce the outstanding balance under our revolving credit facility or, if
fully repaid, will be invested in short-term, investment grade, interest-bearing
instruments, certificates of deposit or direct or guaranteed obligations of the
United States government.
18
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Our common stock trades publicly on the NYSE under the trading symbol "UCR."
The following table sets forth on a per share basis the high and low closing
sale prices for our common stock as reported on the NYSE for the periods
indicated:
HIGH LOW
-------- --------
1999
First Quarter........................................... $19.500 $14.125
Second Quarter.......................................... 26.125 13.750
Third Quarter........................................... 28.063 22.063
Fourth Quarter.......................................... 24.500 15.875
2000
First Quarter........................................... 24.500 13.188
Second Quarter.......................................... 14.688 12.000
Third Quarter........................................... 16.438 11.875
Fourth Quarter.......................................... 12.813 8.250
2001
First Quarter........................................... 13.850 9.188
Second Quarter (through June 21, 2001).................. 15.140 10.360
At June 21, 2001, there were 47 holders of record of outstanding shares of
our common stock and we estimate that there were approximately 4,000
stockholders represented by nominees.
Our common stock is included in Standard & Poor's 400 Mid-Cap Index and the
Russell 2000 Index.
DIVIDEND POLICIES AND RESTRICTIONS
It is the current policy of UCAR's Board of Directors to retain earnings to
finance strategic and other plans and programs, conduct business operations,
fund acquisitions, meet obligations and repay debt. Any declaration and payment
of cash dividends or repurchases of common stock will be subject to the
discretion of UCAR's Board of Directors and will be dependent upon our financial
condition, results of operations, cash requirements and future prospects, the
limitations contained in the New Senior Facilities and other factors deemed
relevant by UCAR's Board of Directors. We do not anticipate paying any cash
dividends.
UCAR is a holding company that derives substantially all of its raw materialscash flow
from UCAR Global. Consequently, UCAR's ability to pay dividends or repurchase
common stock is dependent upon the earnings of UCAR Global and energyits subsidiaries
and the distribution of those earnings by UCAR Global to UCAR.
Under the New Senior Facilities, UCAR is permitted to pay dividends on and
repurchase common stock, and UCAR Global is permitted to pay dividends to UCAR
for those purposes, only 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 varietycumulative basis since February 22, 2000.
In addition, UCAR Global is permitted to pay dividends to UCAR in respect of
sourcesUCAR's administrative fees and has no material long-term purchase contractsexpenses, to fund certain expenses in connection
with the lawsuit initiated by us against our former parents, and to fund
payments in connection with antitrust, securities and stockholder derivative
investigations, lawsuits and claims. The total amount of dividends to fund those
payments (in each case, excluding certain imputed interest), plus the total
amount paid on intercompany debt owed to UCAR for the same purpose (in each
case, excluding
19
certain imputed interest), plus the amount of additional reserves created with
respect to these investigations, lawsuits and claims may 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). UCAR Global is also permitted to pay dividends to UCAR of up to
$15 million for the purpose of making an investment in Graftech and may also
distribute the capital stock of Graftech to UCAR.
20
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2001
(i) on an actual basis and (ii) as adjusted to reflect this offering (assuming
an offering price of $13.00 and assuming no exercise of the underwriters'
over-allotment option) and the initial application of the net proceeds
therefrom. You should read this table in conjunction with "Use of Proceeds,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this prospectus.
MARCH 31, 2001
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 56 $ 56
===== =====
Payments due within one year on long-term debt(a)........... $ 34 $ --
===== =====
Long-term debt(b)(c)........................................ $ 679 $ 616
Stockholders' equity (deficit):
Preferred stock, par value $.01, 10,000,000 shares
authorized, none issued(d).............................. -- --
Common stock, par value $.01, 100,000,000 shares
authorized, 48,156,055 shares issued actual and
56,156,055 shares, as adjusted(e)....................... -- 1
Additional paid-in capital................................ 532 628
Accumulated other comprehensive (loss)(f)................. (249) (249)
Retained earnings (deficit)............................... (512) (512)
Treasury stock at cost, 2,319,482 actual and as
adjusted................................................ (85) (85)
Common stock held in employee benefits trust, 426,400
actual and as adjusted.................................. (6) (6)
----- -----
Total stockholders' equity (deficit).................... (320) (223)
----- -----
Total capitalization(g)............................... $ 359 $ 393
===== =====
- ------------------------
(a) Excludes $2 million of short term debt.
(b) Excludes $2 million of short term debt and the $34 million current portion
of long term debt.
(c) Assumes that $49 million of net proceeds is applied to repay term loans and
$48 million of net proceeds is applied to reduce temporarily the outstanding
balance under our revolving credit facility ($90 million outstanding at
March 31, 2001) pending use to fund growth and expansion of our Advanced
Energy Technology Division.
(d) Excludes preferred stock purchase rights attached to our common stock,
including the shares of our common stock offered by this prospectus,
pursuant to our stockholder rights plan.
(e) Excludes 8,123,658 shares issuable upon the exercise of options outstanding
under our stock option and equity incentive plans, with a weighted average
exercise price of $18.05. At June 20, 2001, after giving effect to grants
and exercises of options and contributions of shares to our employee savings
plan and other transactions after March 31, 2001, the number of treasury
shares (both actual and as adjusted) would be 2,322,412, the number of
shares issued, as adjusted, would be 56,254,814 (including the 2,322,412
treasury shares and 426,400 shares held in the employee benefits trust), the
number of shares issued actual would be 48,254,814 (including the 2,322,412
treasury shares and 426,400 shares held in the employee benefits trust) and
the number of shares issuable upon exercise of options would be 8,049,858.
(f) Accumulated other comprehensive (loss) represents, predominantly,
translation losses on our foreign operations.
(g) Based on the last reported sale price of our common stock on June 21, 2001,
our market equity capitalization was about $598 million and our total market
capitalization, consisting of the sum of our long term debt at March 31,
2001 and such market equity capitalization, was about $1.3 billion.
21
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data at and for the years
ended December 31, 1996, 1997, 1998, 1999 and 2000 have been derived from our
audited annual Consolidated Financial Statements. The following selected
consolidated financial data for the three months ended March 31, 2000 and 2001
have been derived from our quarterly Consolidated Financial Statements, which
are unaudited but in the opinion of our management reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of our results of operations for such periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the full fiscal years. You should read this information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and notes
thereto elsewhere in this prospectus.
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $ 948 $ 1,097 $ 947 $ 831 $ 776 $ 195 $ 171
Gross profit(a)............................ 365 411 343 258 216 57 49
Selling, administrative and other
expenses................................. 90 115 103 86 86 24 21
Restructuring charges (credits)(b)......... -- -- 86 (6) 6 6 --
Impairment loss on long-lived assets(c).... -- -- 60 35 3 -- --
Antitrust investigations and related
lawsuits and claims(d)................... -- 340 -- -- -- -- --
Securities class action and stockholder
derivative lawsuits(e)................... -- -- -- 13 (1) -- --
Operating profit (loss).................... 268 (58) 77 130 111 24 25
Interest expense........................... 61 64 73 84 75 21 19
Income (loss) before extraordinary items... 145 (160) (30) 42 23 2 3
Extraordinary items, net of tax(f)......... -- -- 7 -- 13 13 --
Net income (loss).......................... 145 (160) (37) 42 10 (11) 3
Earnings (loss) per common share:
Basic: Income (loss) before extraordinary
items.................................. $ 3.15 $ (3.49) $ (0.66) $ 0.94 $ 0.51 $ 0.04 $ 0.07
Net income (loss)...................... 3.15 (3.49) (0.83) 0.94 0.22 (0.25) 0.07
======= ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding (IN THOUSANDS)........... 46,274 45,963 44,972 45,114 45,224 45,116 45,222
======= ======= ======= ======= ======= ======= =======
Diluted: Income (loss) before
extraordinary items.................... $ 3.00 $ (3.49) $ (0.66) $ 0.91 $ 0.50 $ 0.04 $ 0.07
Net income (loss)...................... 3.00 (3.49) (0.83) 0.91 0.22 (0.24) 0.07
======= ======= ======= ======= ======= ======= =======
Weighted average common shares
outstanding (IN THOUSANDS)........... 48,469 45,963 44,972 46,503 45,813 46,183 46,033
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.................. $ 95 $ 58 $ 58 $ 17 $ 47 $ 15 $ 56
Total assets............................... 1,017 1,262 1,137 933 908 892 879
Total debt................................. 635 732 804 722 735 736 715
Other long-term obligations................ 138 313 266 224 209 222 213
Stockholders' equity (deficit)............. 17 (227) (287) (293) (316) (312) (320)
Working capital............................ 263 94 203 105 101 170 97
22
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
OTHER DATA:
Gross profit margin........................ 38.5% 37.5% 36.2% 31.0% 27.8% 29.2% 28.7%
Operating profit (loss) margin............. 28.3 (5.3) 8.1 15.6 14.3 12.3 14.6
Depreciation and amortization.............. $ 36 $ 49 $ 51 $ 45 $ 43 $ 11 $ 10
Capital expenditures....................... 62 79 52 56 52 9 5
EBITDA(g).................................. 304 (9) 217 212 157 46 35
Cash flow provided by operations (excluding
antitrust fines, settlements and
expenses)................................ 172 175 113 144 117 17 19
Cash flow used for antitrust fines,
settlements and expenses................. -- (3) (142) (64) (23) (3) (8)
Cash flow provided by (used in)
operations............................... 172 172 (29) 80 94 14 11
Cash flow used in investing activities..... (104) (221) (31) (39) (50) (7) (4)
- --------------------------
(a) In 1999, we recorded an $8 million charge for the write-down to lower of
cost or market of certain graphite specialties inventory.
(b) For 1998, represents costs recorded in connection with closing graphite
electrode operations in Canada and Germany and the consolidation of certain
corporate administrative offices. These costs consisted primarily of
severance, write-offs of fixed assets and environmental and other shutdown
costs. For 1999, represents a net reduction in the estimate of shutdown
costs recorded in 1998. For 2000, includes: a $6 million charge in
connection with the restructuring of our graphite specialties business in
the 2000 first quarter, $4 million of which was reversed in the 2000 third
quarter and the $2 million balance of which consisted primarily of
severance; and a $4 million charge in connection with a corporate
restructuring involving workforce reduction in the 2000 fourth quarter,
which consisted primarily of severance.
(c) Represents impairment losses on long-lived assets associated with our
Russian assets in 1998, our graphite specialties assets in 1999 and certain
cathode assets located at our Columbia, Tennessee facility in 2000.
(d) Represents estimated potential liabilities and expenses in connection with
antitrust investigations and related lawsuits and claims.
(e) Represents in 1999 estimated liabilities and expenses in connection with
securities class action and stockholder derivative lawsuits, $1 million of
which was reversed in 2000.
(f) The 1998 extraordinary item and the 2000 extraordinary item resulted from
early extinguishment of debt in connection with our debt refinancings and
recapitalizations.
(g) EBITDA, for this purpose, means operating profit (loss), plus depreciation,
amortization, the impairment losses on long-lived assets and inventory
write-down (in each case as described above), and that portion of
restructuring charges (credits) applicable to non-cash asset write-offs. The
amount of restructuring charges (credits) applicable to non-cash asset
write-offs was a charge of $29 million in 1998. We believe that EBITDA is
generally accepted as providing useful information regarding a company's
ability to incur and service debt. EBITDA should not be considered in
isolation or as a substitute for net income, cash flows from continuing
operations or other consolidated income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. Our method for calculating EBITDA
may not be comparable to methods used by other companies and is not the same
as the method for calculating EBITDA under the New Senior Facilities.
The following quarterly selected consolidated financial data have been
derived from the Consolidated Financial Statements for the periods indicated,
which have not been audited. The selected quarterly consolidated financial data
set forth below should be read in conjunction with the sections of this
prospectus entitled "Management's Discussion and Analysis of Financial Condition
and Results of
23
Operations" and the Consolidated Financial Statements and notes thereto included
elsewhere in this prospectus.
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
1999:
Net sales.............................. $ 202 $ 211 $ 210 $ 208
Gross profit(a)........................ 63 73 70 52
Net income (loss)(a)(b)................ 14 20 21 (13)
Basic net income (loss) per share...... $0.30 $0.45 $0.46 $(0.28)
===== ===== ===== ======
Diluted net income (loss) per share.... $0.30 $0.44 $0.45 $(0.28)
===== ===== ===== ======
2000:
Net sales.............................. $ 195 $ 199 $ 192 $ 190
Gross profit........................... 57 56 53 50
Net income (loss)(c)(d)(e)............. (11) 11 7 3
Basic income (loss) per share before
extraordinary item................... $0.04 $0.24 $0.16 $ 0.07
Basic net income (loss) per share...... (0.25) 0.24 0.16 0.07
===== ===== ===== ======
Diluted income (loss) per share before
extraordinary item................... $0.04 $0.24 $0.16 $ 0.07
Diluted net income (loss) per share.... (0.24) 0.24 0.16 0.07
===== ===== ===== ======
2001:
Net sales.............................. $ 171
Gross profit........................... 49
Net income (loss)...................... 3
Basic net income (loss) per share...... $0.07
=====
Diluted net income (loss) per share.... $0.07
=====
- --------------------------
(a) The 1999 fourth quarter includes an impairment loss of $35 million
associated with our long-lived graphite specialties assets and a write-down
of $8 million associated with certain graphite specialties inventory.
(b) The 1999 third quarter includes a restructuring credit of $6 million related
to lower net anticipated demolition costs resulting primarily from the
outsourcing of a majority of the planned demolition at our plant in Canada
and, to a lesser extent, lower severance and related costs. The 1999 third
quarter also includes a $13 million charge for estimated liabilities and
expenses in connection with securities class action and stockholder
derivative lawsuits.
(c) The 2000 first quarter includes an extraordinary charge of $13 million in
connection with the early extinguishment of debt and a restructuring charge
of $6 million in connection with a restructuring of our graphite specialties
business.
(d) The 2000 second quarter includes a credit of $1 million arising from the
reversal of a portion of the charge in connection with securities class
action and stockholder derivative lawsuits.
(e) The 2000 third quarter includes a restructuring credit of $4 million arising
from the reversal of a portion of the restructuring charge related to our
graphite specialties business and includes an impairment loss of $3 million
associated with certain long-lived cathode assets located at our Columbia,
Tennessee facility.
(f) The 2000 fourth quarter includes a restructuring charge of $4 million in
connection with a corporate restructuring, mainly for severance and related
benefits associated with a workforce reduction.
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
COMPANY BACKGROUND. We are one of the world's largest providers of natural
and synthetic graphite and carbon products and services. Our products provide
energy solutions to customers in the steel, aluminum, fuel cell power
generation, electronics, semiconductor and transportation industries. We have a
global business, selling our products and engineering and technical services in
more than 80 countries, with 15 manufacturing facilities strategically located
in Brazil, France, Italy, Mexico, Russia, South Africa, Spain and the U.S. and a
joint venture manufacturing facility located in China, which, subject to
required Chinese governmental approvals, is expected to commence operations in
2002. As a result of our experience, technology and manufacturing capability, we
believe that we have the largest worldwide market share in all of our major
product lines.
In June 1998, we began to implement management changes which have resulted
in a new senior management team. This team has actively lowered costs, reduced
debt and developed growth initiatives. In early 2001, we launched a strategic
initiative to strengthen our competitive position and to change our corporate
vision from an industrial products company to an energy solutions company. In
connection with this initiative, we have realigned our company and management
around two new operating divisions, our Graphite Power Systems Division and our
Advanced Energy Technology Division.
COST SAVINGS. UCAR's Board of Directors adopted a global restructuring and
rationalization plan in September 1998 and we launched additional initiatives to
enhance the plan in October 1999. The plan is intended to enhance stockholder
value by focusing on optimizing margins, maximizing free cash flow, generating
growth in earnings and strengthening competitiveness through operating and
overhead cost reductions and plant rationalization. The plan is also intended,
over the long term, to strengthen our position as a low cost supplier to the
steel and metals industries and, over the near term, to respond to economic
conditions that have been impacting our customers. We believe that the plan is
the most aggressive major cost reduction plan currently being implemented in the
graphite and carbon industry. These savings are permanent on-going cost savings.
The original plan included plant rationalization, plant cost reduction and
overhead cost reduction. The original plan resulted in a 1998 third quarter
restructuring charge of $86 million, of which $29 million was a non-cash charge.
We also recorded a 1998 third quarter impairment loss on long-lived Russian
assets of $60 million.
As planned, we ceased manufacturing operations at our plant in Germany in
1998. Our Canadian plant ceased production activities in April 1999. We
completed, ahead of schedule, our consolidation of administrative offices with
the relocation of headquarter activities to Nashville, Tennessee and European
administration activities to our Swiss subsidiary. About 366 positions were
eliminated pursuant to those elements of the plan.
We achieved cost savings of about $73 million in 1999, exceeding our
original target of $64 million. We achieved about $41 million of those savings
in cost of sales.
We achieved cost savings of about $96 million in 2000, exceeding our
original target of $93 million. We achieved about $64 million of those savings
in cost of sales.
We believe that the cost savings under the plan have enabled us to
strengthen our competitiveness. We also believe that we must continue to enhance
our focus on cost savings to achieve the ultimate objectives of the plan.
Accordingly, in October 1999, we announced and launched additional initiatives
to add $30 million of further targeted cost savings to the plan by the end of
2002.
25
Among other things, we increased the number of identified plant cost
reduction projects from the more than 120 originally identified to more than
230. We evaluated every aspect of our supply chain and improved performance
through realignment and standardization of critical business processes,
standardization of enterprise wide systems, and improvement of information
technology infrastructure and interfaces with trading partners. Our targets
include decreasing inventories, as measured against inventory levels and based
on production levels for the 1999 first nine months (annualized), by over 20%,
or to about $180 million, and reducing our cash cycle time, by the end of 2002,
by about one-third as compared to 1998. We have already achieved our inventory
level target.
Further, we completed a global benchmarking study during 1999 that
identified opportunities for performance improvement and cost savings in certain
key global administrative and transaction processing functions. Based on the
study, work processes are being redesigned to seek to improve shared services
for better global efficiencies and standardize enterprise wide resource and
supply chain planning systems.
We have evaluated and continue to refine our debt, working capital and
organizational structures to improve cash management and reduce tax expense. We
believe that our effective average annual tax rate will be about 40% in 2001 and
2002 and that we will be able to reduce that rate to 25% over the long term.
During late 1999 and into the 2000 first quarter, our graphite specialties
business, which now is part of our Advanced Graphite and Carbon Materials
business unit, experienced significant adverse change due to a decline in
demand, particularly from certain segments of the semiconductor industry, the
growth in supply due to expansion by other producers, a decline in prices and
delays in bringing new or improved products to market. This change indicated the
need for assessing the recoverability of the long-lived assets of this business.
These assets were located primarily at our plant in Clarksburg, West Virginia.
We estimated the future undiscounted cash flows expected to result from the use
of these assets and concluded they were below the respective carrying amounts.
Accordingly, we recorded an impairment loss of $35 million in the 1999 fourth
quarter for the unrecoverable portion of these assets, effectively writing down
the carrying value of the fixed assets to their estimated fair value of
$6 million. In 2000, we restructured the business. The key elements of the
restructuring consisted of elimination of low profitability product lines,
rationalization of operations to generate costs savings and improve
profitability of the remaining product lines, and use of graphite specialties
technology to develop new, and expand existing, markets. Accordingly, in the
2000 first quarter, we recorded a restructuring charge of $6 million. In the
2000 third quarter, based on subsequent developments, we decided not to demolish
certain buildings. Accordingly, we reversed $4 million of the charge related
thereto. The $2 million balance of the charge related primarily to severance
costs. We expect the restructuring to generate cost savings at an annual run
rate of about $7 million by the end of 2001.
In the 2000 third quarter, we recorded an impairment loss of $3 million on
long-lived cathode assets in connection with the re-sourcing of our U.S. cathode
production to our facilities in Brazil and France and the related reduction of
certain graphite electrode manufacturing capacity in those facilities. This
re-sourcing was undertaken to respond to growing global demand for graphite
cathodes from the aluminum industry.
In the 2000 fourth quarter, we recorded a $4 million charge in connection
with a corporate restructuring involving a workforce reduction of about 85
employees. The functional areas affected include finance, accounting, sales,
marketing and administration. The charge consists primarily of severance costs.
The restructuring is expected to reduce spending by about $2 million in 2001 and
$6 million per year thereafter. We continue to target reducing selling and
administrative expenses to about $76 million by the end of 2002, a reduction of
about 26% as compared to 1998.
In May 2001, we announced that we intend to shut down our graphite electrode
manufacturing operations in our Clarksville and Columbia, Tennessee facilities
for an undetermined period of time.
26
Graphite machining operations in Clarksville will continue using products from
our other facilities. The shutdown is part of our strategy of reducing costs and
optimizing global production capacity and reflects current graphite electrode
market conditions. These operations are our highest cost graphite electrode
manufacturing operations.
We expect that the shutdown will result in annual cost savings of
$18 million beginning in 2002 and will enable us to avoid $9 million in
otherwise necessary capital expenditures. We expect to record restructuring,
impairment and related charges estimated to be $50 million to $60 million in the
2001 second quarter in connection with the shutdown, including $3 million of
cash costs primarily for severance. The shutdown will affect about 180
employees. The shutdown is expected to be completed by the end of the 2001 third
quarter. These operations have capacity to produce about 40,000 tons of graphite
electrodes annually. We expect to incrementally expand graphite electrode
manufacturing capacity at our facilities in Mexico and Europe for an expected
capital investment of about $3 million. After the shutdown and expansion, our
total annual graphite electrode manufacturing capacity will be reduced from
230,000 metric tons to 210,000 metric tons.
POWER OF ONE BUSINESS TRANSFORMATION INITIATIVE. In support of our
strategy, we are implementing 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 expect the
initiative to accelerate development and implementation of business
opportunities and develop leadership skills more broadly within all management
levels as well as support our efforts to reduce costs and working capital needs,
improve efficiencies and product quality, shorten cycle times and achieve "best
in class" performance. The initiative is also designed to enable us to achieve
the successful completion of our previously announced cost reduction activities.
In 2000, our investment in the initiative included about $4 million of
consulting fees and $3 million of capital expenditures, primarily for advanced
planning and scheduling supply chain software and global treasury management
information systems. We believe that most of the future investment for this
initiative will be funded from realized cost savings.
Effective April 2001, we entered into a ten year service contract with CGI
Group Inc. pursuant to which CGI became the delivery arm for our global
information technology service requirements, including the design and
implementation of our global information and advanced manufacturing and demand
planning processes, using J.D. Edwards software. Through this contract, we
expect to transform our information technology service capability into an
efficient, high quality enabler for our global supply chain initiatives as well
as contributing to our cost reduction objectives. Under the outsourcing
provisions of this contract, CGI will manage our data center services, networks,
desktops, telecommunications and legacy systems, with an anticipated annual cost
savings of about $1 million. Through this contract, we will be able to leverage
the resources of CGI to assist us in achieving our information technology goals
and our targeted cost savings.
STRATEGIC ALLIANCES. We are pursuing strategic alliances that enhance or
complement our existing or related businesses. Strategic alliances may be in the
form of joint venture, licensing, supply or other arrangements that leverage our
strengths to achieve cost savings, improve margins and cash flow, and increase
net sales and earnings growth.
In December 2000, we entered into a license and technical services agreement
with Conoco to license our proprietary technology for use at the carbon fiber
manufacturing facility that Conoco is building in Ponca City, Oklahoma. In
addition, we will continue to provide a wide variety of technical services to
Conoco. Under a separate tolling agreement, which was entered into in
February 2001, we will utilize proprietary manufacturing technology of our
graphite specialties business to provide manufacturing services at our
Clarksburg, West Virginia facility for carbon fibers to be subsequently produced
at Conoco's new facility. Conoco's new carbon fiber technology could be used in
portable power applications, such as personal computers and cell phones, as well
as a wide range of other
27
electronic devices and automotive applications. We are working with Conoco to
expand our strategic relationship in supply chain and other areas.
In March 2001, we contributed our Brazilian cathode manufacturing operations
with a book value of $3 million to Carbone Savoie. Pechiney, the 30% minority
owner of Carbone Savoie, contributed approximately $9 million in cash to Carbone
Savoie as part of this transaction. Prior to these contributions, all of Carbone
Savoie's manufacturing operations were located in France. The cash contribution
will be used to upgrade manufacturing operations in Brazil and France, which is
expected to be completed in early 2002. Ownership in Carbone Savoie remains 70%
by us and 30% by Pechiney. Under our now broadened alliance, Carbone Savoie
holds our entire cathode manufacturing capacity, which is about 40,000 metric
tons of cathodes annually.
In April 2001, we entered into a joint venture agreement with Jilin to
produce and sell high-quality graphite electrodes in China, which we believe to
be the largest market for graphite electrodes in the world. Jilin is the largest
producer of graphite electrodes and other graphite and carbon products in China.
The joint venture is expected to have capacity to manufacture about 20,000
metric tons of graphite electrodes annually and to be configured so as to be
expandable to about 30,000 metric tons. The 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 2002. We will provide $6 million
of cash and technical assistance for a 25% ownership interest in the joint
venture. The completion of the parties' capital contributions to the joint
venture is subject to the receipt of required Chinese governmental and corporate
confirmations and approvals.
We have been working with Ballard since 1992 on developing natural
graphite-based materials for use in Ballard fuel cells. We expect
commercialization of fuel cells to occur in the middle of this decade,
particularly as countries around the world deal with environmental problems
created from other sources of energy. Advances in fuel cell technology, growth
in worldwide power demand and deregulation of power utilities as well as
environmental issues are driving the market. Potential fuel cell applications
include transportation, stationary and portable applications.
Ballard is the world leader in developing zero-emission fuel cells known as
PEM fuel cells, including direct methanol fuel cells, for power generation.
Seven out of the nine prototype fuel cell vehicles in the California Fuel Cell
Partnership use Ballard's Mark 900 PEM fuel cell stack, including Ford's FC5 and
Daimler Chrysler's NECAR 4A, Jeep Commander and, most recently, NECAR 5. In
2000, the California Air Resource Board reaffirmed its commitment to the
requirement that 2% of vehicles sold in California be zero emission vehicles by
2005.
In 1999, we entered into a collaboration agreement with Ballard to
coordinate our respective research and development efforts on flow field plates
and a supply agreement for flexible graphite materials. In 2000, Ballard
launched its new Mark 900 PEM fuel cell stack and announced that it was the
foundation for Ballard's fuel cells for transportation, stationary and portable
applications. The flow field plates used in Ballard's Mark 900 PEM fuel cell
stack are made from our GRAFCELL-TM- advanced flexible graphite products.
In June 2001, our subsidiary, Graftech, entered into a new exclusive
development and collaboration agreement and a new exclusive long-term supply
agreement with Ballard which significantly expand the scope and term of the 1999
agreements. In addition, Ballard also became a strategic investor in Graftech,
investing $5 million for a 2.5% equity ownership interest, to support
development and commercialization of natural graphitic materials and components
for PEM fuel cells. As an investor in Graftech, Ballard has rights of first
refusal with respect to certain equity ownership
28
transactions, tag along and drag along rights, and preemptive and other rights
to acquire additional equity ownership under certain limited circumstances.
The scope of the new exclusive development and collaboration agreement
includes natural graphite-based materials and components, including flow field
plates and gas diffusion layers, for use in PEM fuel cells and fuel cell systems
for transportation, stationary and portable applications. The initial term of
this agreement extends through 2011. As part of this agreement, we have agreed
to develop and manufacture prototype graphitic materials and components and
provide early stage testing of these prototypes in an on-site fuel cell testing
center. Under the new supply agreement, we will be the exclusive manufacturer
and supplier of natural graphite-based materials for Ballard fuel cells and fuel
cell systems. We will also be the exclusive manufacturer of natural
graphite-based components, other than those components Ballard manufactures for
itself. The initial term of this agreement, which contains customary terms and
conditions, extends through 2016. We have the right to manufacture and sell,
after agreed upon release dates, natural graphite-based materials and components
for use in PEM fuel cells to other parties in the fuel cell industry. In
connection with the manufacture and sale of components, Ballard will grant us a
royalty-bearing license for related manufacturing process technology.
REFINANCING AND DEBT RECAPITALIZATION. In November 1998, the Prior Senior
Facilities were refinanced and the indenture governing the Subordinated Notes
(the "SUBORDINATED NOTE INDENTURE") was amended. In connection with the
refinancing, we obtained additional term debt of $210 million. Our new
management team undertook this refinancing to enable us to pay antitrust fines,
liabilities and expenses and to strengthen our financial condition by extending
maturities of some of our debt.
In February 2000, we completed a debt recapitalization. We obtained the New
Senior Facilities, which were amended in October 2000 and April 2001. The New
Senior Facilities consist of a E300 million six year term loan facility, a
$350 million eight year term loan facility and a E250 million six year revolving
credit facility. The six year term loan and revolving credit facilities are
dollar/euro dual currency facilities. We used the net proceeds from the New
Senior Facilities 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. 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. The debt
recapitalization lowered our average annual interest rate, extended the average
maturities of our debt and replaced our financial and other covenants. In light
of changes in conditions affecting our industry, changes in global and regional
economic conditions, our recent financial performance and other factors, we
closely monitor our compliance with those covenants.
In October 2000, the 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 our interest rate increased by 25 basis points.
In April 2001, the New Senior Facilities were amended to, among other
things, exclude certain expenses incurred in connection with the lawsuit
initiated by us against our former parents and certain charges and payments in
connection with antitrust fines, settlements and expenses from the calculation
of financial covenants through June 30, 2002 and in certain cases thereafter.
LITIGATION AGAINST OUR FORMER PARENT COMPANIES INITIATED BY US. In
February 2000, we commenced a lawsuit against our former parents, Mitsubishi
Corporation and Union Carbide Corporation. The other defendants include two of
the respective representatives of Mitsubishi and Union Carbide who served on
UCAR's Board of Directors at the time of the 1995 equity recapitalization. In
the lawsuit, we allege, among other things, that certain payments made to our
former parents in connection with the 1995 equity recapitalization were unlawful
under the General Corporation Law of the State of
29
Delaware, that our former parents were unjustly enriched by receipts from their
investments in UCAR 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. The defendants have filed
motions to dismiss this lawsuit and motions to disqualify certain of our counsel
from representing us in this lawsuit. We are vigorously opposing those motions.
We expect to incur $10 million to $20 million in legal expenses to pursue this
lawsuit from the date of filing the complaint through trial. As of March 31,
2001, we had incurred about $4 million of these legal expenses.
ANTITRUST AND OTHER LITIGATION AGAINST US. Since 1997, we have been subject
to antitrust investigations by antitrust authorities in the U.S., the European
Union, Canada, Japan and Korea. In addition, we have learned that the Brazilian
antitrust authorities have requested written information from various steel
makers in Brazil. In addition, civil antitrust lawsuits have been commenced and
threatened against us and other producers and distributors of graphite and
carbon products in the U.S., Canada and elsewhere. We recorded a pre-tax charge
against results of operations for 1997 in the amount of $340 million as a
reserve for estimated potential liabilities and expenses in connection with
antitrust investigations and related lawsuits and claims.
In April 1998, UCAR pled guilty to a one-count charge of violating U.S.
federal antitrust 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 of $20 million, $15 million, $15 million, $18 million,
$21 million, and $21 million, commencing July 23, 1998 (the "DOJ FINE"). The
payments due in 1998, 1999 and 2000 were timely made. At our request, each of
the remaining three payments has been deferred by one year. Of the $110 million
aggregate amount, $87 million is treated as a fine and $23 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 steel makers in the U.S. and Canada as well as antitrust
claims by certain other customers. In the aggregate, the fines and net
settlements and expenses are within the amounts we used for purposes of
evaluating the $340 million charge. None of the settlement or plea agreements
contain restrictions on future prices of our graphite electrodes. There remain,
however, certain pending lawsuits and claims. In October 1999, we became aware
that the Korean antitrust authority had commenced an investigation as to whether
there had been any violations of Korean antitrust law by producers and
distributors of graphite electrodes. No fine has been assessed. The maximum
fine, if any, for such a violation is five percent of a company's sales of the
relevant product during the period of violation, a maximum fine of about
$5.3 million in our case. Any such fine would be subject to reduction for our
cooperation with the Korean antitrust authority.
In January 2000, the antitrust authority of the European Union 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. No fine has been assessed, and
we are continuing to cooperate with the antitrust authority in the European
Union in its on-going investigation. 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, about $77.6 million in our case (if assessed in 2001), and
is subject to reduction for cooperation. The antitrust authority of the European
Union may permit any fine which may be assessed to be paid over time. While
there is no requirement as to when fines, if any, must be assessed, we believe
that it is likely that any fines to be assessed by the antitrust authority of
the European Union will be assessed during the 2001 third quarter.
Actual fines, settlements, liabilities and expenses, including any fine to
be assessed by the antitrust authority of the European Union, could be
materially higher than the amounts we used for purposes of the $340 million
charge and the timing of payment thereof could be sooner than anticipated. At
30
March 31, 2001, the uncommitted balance of the reserve was about $44 million.
The guilty pleas make it more difficult to defend against other investigations,
lawsuits and claims. At our request, each of the remaining three payments of the
DOJ fine has been deferred one year. Our insurance has not and will not
materially offset liabilities that have or may become due in connection with
antitrust investigations or related lawsuits or claims.
UCAR had been named as a defendant in a stockholder derivative lawsuit and
as a defendant in a securities class action lawsuit, each of which was based, in
part, on the subject matter of the antitrust investigations, lawsuits and
claims. In October 1999, UCAR and the other defendants settled these lawsuits
for an aggregate of $40.5 million, of which $11.0 million was paid by us. These
settlements have become final. We recorded a charge of $13 million, which
included $2 million of expenses, in the 1999 third quarter, in connection with
these settlements. In the 2000 second quarter, we reversed $1 million of this
charge because expenses were lower than expected.
For more information relating to the antitrust investigations and other
litigation against us, see Item 3 of our Annual Report on Form 10-K for the year
ended December 31, 2000.
CUSTOMER BASE. We are a global company and serve all major geographic
markets. Sales of our products to customers outside the U.S. accounted for about
69% of our net sales in 2000. Our customer base includes both steel makers and
non-steel makers. In 2000, five of our ten largest customers were purchasers of
non-graphite electrode products or purchasers of graphite electrodes for
non-steel making purposes. In 2000, five of our ten largest customers were based
in Europe, two were in the U.S. and one in each of Africa, Mexico and Brazil. No
single customer or group of affiliated customers accounted for more than 4% of
our net sales in 2000.
GLOBAL ECONOMIC CONDITIONS AND OUTLOOK. We are impacted in varying degrees,
both positively and negatively, as country or regional conditions affecting the
markets for our products fluctuate.
Throughout 1998 and the 1999 first quarter, electric arc furnace steel
production declined as a result of adverse global and regional economic
conditions. A recovery began in the 1999 second quarter that lasted through
mid-2000. Beginning in mid-2000, electric arc furnace steel production began to
weaken in North America. The weakening became more severe in the 2000 fourth
quarter and is expected to continue at least through the end of 2001, and may
impact other regional economies. Notwithstanding that weakening, in 2000,
estimated worldwide electric arc furnace steel production was a record
285 million metric tons (about 34% of total steel production). These
fluctuations in electric arc furnace steel production resulted in corresponding
fluctuations in demand for graphite electrodes. Pricing, however, weakened
throughout most of this period.
In 1998 and 1999, demand and prices for most of our other products were
adversely affected by the same global and regional economic conditions that
affected graphite electrodes. In the 1999 second quarter, however, worldwide
production by customers for many of our other products began to gradually
recover. During 2000, demand for most of these products as a group was
relatively stable. Overall pricing, however, did not strengthen. The
circumstances that impacted demand and prices for these products in 2000 are
expected to continue in 2001.
We estimate that worldwide graphite electrode demand increased by over 4% in
2000 as compared to 1999. Our volume of graphite electrodes sold increased by 5%
in 2000 as compared to 1999. We implemented, and are continuing to implement,
increases in local currency selling prices of our graphite electrodes announced
in 2000 in Europe, the Asia Pacific region, the Middle East and South Africa. In
April 2001, we implemented an additional 8% local currency selling price
increase in Europe.
In light of, among other things, the weakness in electric arc furnace steel
production in North America, we believe that worldwide electric arc furnace
steel production will decline in 2001 as compared to 2000. We expect that demand
for our graphite electrodes will decline in 2001 as compared to 2000 due to the
decline in electric arc furnace steel production and our efforts to implement
those
31
local currency selling price increases. Assuming no change in product mix, we
expect average local currency selling prices of our graphite electrodes to
increase slightly in 2001 as compared to 2000.
In anticipation of lower demand in 2001 and consistent with our continuing
efforts to reduce inventory levels, we initially reduced operating levels and
laid off certain production employees at certain of our facilities in North
America. We recently announced that we intend to shut down graphite electrode
manufacturing operations at two of our facilities in the U.S. Assuming no such
change in product mix and no change in currency exchange rates from those in
effect at December 31, 2000, we believe that lower production rates and higher
energy and raw materialsmaterial costs would increase our graphite electrode costs of
sales in 2001 as compared to 2000. We believe, however, that the impact of this
shutdown will more than offset this increase by 2002.
In April 2001, Conoco UK Ltd. experienced an explosion at its petroleum coke
plant in Humberside, England. Conoco produces petroleum coke at two plants,
Humberside and Lake Charles, Louisiana. Conoco UK Ltd. has placed petroleum coke
customers on allocation until the end of July 2001. We are working with Conoco
and other coke producers to minimize interruptions in deliveries to us. We have
not been materially adversely affected by this event to date and do not expect
to be so affected in the future unless supply of coke from that plant continues
to be interrupted for longer than expected.
Our outlook could be significantly impacted by changes in global or energy.regional
economic conditions, including the impact of interest rate changes on the part
of the U.S. Federal Reserve and changes in the automotive industry in North
America.
FINANCIAL EFFECTS OF REALIGNMENT
Financial and other information in this prospectus (other than our audited
annual Consolidated Financial Statements) have been presented based on the
realignment of our business segments in 2001 into our Graphite Power Systems
Division and our Advanced Energy Technology Division.
Financial information on our business segments in our audited annual
Consolidated Financial Statements is based on our former business segments,
which were called our Graphite Electrodes segment and our Other Graphite and
Carbon Products segment. In 2001, the realignment combined our carbon electrode
and graphite and carbon cathode businesses with our graphite electrode business
to form our Graphite Power Systems Division. The accounting policies of both our
former segments and our new segments are the same, as they are for us as a
whole. Intersegment sales and transfers, both for our former segments and our
new segments, are not material. We do not report assets by
32
business segment. The following table sets forth certain information regarding
our former segments and our new segments.
NEW FORMER
GRAPHITE GRAPHITE NEW
FORMER POWER AND ADVANCED
GRAPHITE SYSTEMS CARBON ENERGY
ELECTRODE DIVISION PRODUCTS TECHNOLOGY TOTAL
SEGMENT SEGMENT SEGMENT SEGMENT OTHER CONSOLIDATED
--------- -------- -------- ---------- -------- ------------
(DOLLARS IN MILLIONS)
1998:
Net sales to external customers............ $652 $797 $295 $150 $-- $947
Gross profit............................... 247 295 96 48 -- 343
Depreciation and amortization.............. 36 42 11 5 4 51
1999:
Net sales to external customers............ 562 700 269 131 -- 831
Gross profit............................... 196 236 62 22 -- 258
Depreciation and amortization.............. 31 37 12 6 2 45
2000:
Net sales to external customers............ 526 651 250 125 -- 776
Gross profit............................... 151 184 65 32 -- 216
Depreciation and amortization.............. 33 40 10 3 -- 43
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items in
the Consolidated Statements of Operations and the increase or decrease
(expressed as a percentage of such item in the comparable prior period) of such
items:
THREE MONTHS PERCENTAGE
YEAR ENDED ENDED INCREASE
DECEMBER 31, MARCH 31, (DECREASE)
------------------------------ ------------------- ------------------------------
Q1 2000
1998 1999 TO
1998 1999 2000 2000 2001 TO 1999 TO 2000 Q1 2001
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Net sales............................... $947 $831 $776 $195 $171 (12)% (7)% (12)%
Cost of sales........................... 604 573 560 138 122 (5) (2) (12)
---- ---- ---- ---- ---- --- --- ---
Gross profit............................ 343 258 216 57 49 (25) (16) (14)
Research and development................ 9 9 11 3 3 -- 22 --
Selling, administrative and other
expenses.............................. 103 86 86 24 21 (17) -- (13)
Other (income) expense, net............. 8 (9) -- -- -- N/M N/M N/M
Restructuring charges (credits)......... 86 (6) 6 6 -- N/M N/M N/M
Impairment loss on long-lived assets.... 60 35 3 -- -- N/M N/M N/M
Securities class action and stockholder
derivative lawsuits................... -- 13 (1) -- -- N/M N/M N/M
Operating profit........................ 77 130 111 24 25 69 (15) 4
- --------------------------
N/M: Not Meaningful
33
The following table sets forth, for the periods indicated, the percentage of
net sales represented by certain items in the Consolidated Statements of
Operations:
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
Net sales....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 63.8 69.0 72.2 70.8 71.3
------ ------ ------ ------ ------
Gross profit.................................... 36.2 31.0 27.8 29.2 28.7
Research and development........................ 1.0 1.1 1.4 1.5 1.8
Selling, administrative and other expenses...... 10.9 10.3 11.0 12.3 12.3
Other (income) expenses, net.................... 0.8 (1.1) -- -- --
Restructuring charges (credit).................. 9.1 (0.7) 0.8 3.1 --
Impairment loss on long-lived assets............ 6.3 4.2 0.4 -- --
Securities class action and stockholder
derivative lawsuits........................... -- 1.6 (0.1) -- --
Operating profit................................ 8.1 15.6 14.3 12.3 14.6
The following table sets forth, for the periods indicated, certain items in
the Consolidated Statements of Operations and certain information as to gross
profit margins related to our business segments:
GRAPHITE POWER SYSTEMS DIVISION
----------------------------------------------------------------
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ ----------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Net sales............ $797 $700 $651 $161 $136
Cost of sales........ 502 464 467 112 98
---- ---- ---- ---- ----
Gross profit......... $295 $236 $184 $ 49 $ 38
==== ==== ==== ==== ====
Gross profit
margin............. 37.0% 33.7% 28.3% 30.4% 27.9%
ADVANCED ENERGY TECHNOLOGY DIVISION
----------------------------------------------------------------
THREE
YEAR ENDED MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------------ ----------------------
1998 1999 2000 2000 2001
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
Net sales............ $150 $131 $125 $ 34 $ 35
Cost of sales........ 102 109 93 26 24
---- ---- ---- ---- ----
Gross profit......... $ 48 $ 22 $ 32 $ 8 $ 11
==== ==== ==== ==== ====
Gross profit
margin............. 32.0% 16.8% 25.6% 23.5% 31.4%
THREE MONTHS ENDED MARCH 31, 2001 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2000. Net sales of $171 million in the 2001 first quarter represented
a $24 million, or 12%, decrease from net sales of $195 million in the 2000 first
quarter. Gross profit of $49 million in the 2001 first quarter represented an
$8 million, or 14%, decrease from gross profit of $57 million in the 2000 first
quarter. Gross profit margin was 28.7% in the 2001 first quarter as compared to
29.2% in the 2000 first quarter. The decrease in net sales and gross profit was
primarily due to lower volume of graphite and carbon electrodes sold.
Cost of sales declined primarily due to the lower volumes sold. The impact
of the lower volumes sold was partially offset by higher energy costs. Cost of
sales per metric ton of graphite electrodes increased due to lower production
levels. The decrease in gross profit margin was primarily due to the fact that
the percentage decrease in net sales was greater than the percentage decrease in
cost of sales, some of which are essentially fixed.
GRAPHITE POWER SYSTEMS DIVISION. Net sales declined to $136 million in the
2001 first quarter from $161 million in the 2000 first quarter, primarily due to
lower volume of most products sold, particularly graphite electrodes. Volume of
graphite electrodes sold was 43,000 metric tons during the 2001 first quarter as
compared to 51,200 metric tons during the 2000 first quarter. The decrease in
volume of graphite electrodes sold represented a reduction of $20 million in net
sales. Average sales revenue per metric ton of graphite electrodes in the 2001
first quarter was $2,419 as compared to the average in the
34
2000 first quarter of $2,485. The lower average sales revenue per metric ton
represented a reduction of $3 million in net sales. Unfavorable changes in
currency exchange rates represented a reduction of $5 million in net sales of
graphite electrodes, offsetting the benefit of increases in selling prices in
local currencies. Volume of cathodes sold was 9,000 metric tons during the 2001
first quarter as compared to 8,000 metric tons during the 2000 first quarter.
Cost of sales decreased to $98 million in the 2001 first quarter from
$112 million in the 2000 first quarter. The decrease was primarily due to lower
volume of graphite electrodes sold. Lower operating levels and higher energy
costs resulted in a $30 higher average cost of sales per metric ton of graphite
electrodes for the 2001 first quarter as compared to the 2000 first quarter.
Gross profit in the 2001 first quarter was $38 million (27.9% of net sales), a
decrease from gross profit in the 2000 first quarter of $49 million (30.4% of
net sales). The decrease in gross profit margin was due to the fact that the
decline in net sales exceeded the decline in cost of sales.
ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales increased to $35 million in
the 2001 first quarter from $34 million in the 2000 first quarter, primarily due
to an increase in volume of most products sold, particularly refractories and
fuel cell products, and technical service and technology license fees, partially
offset by a decrease in volume of flexible graphite sold for gasket applications
due to lower demand from the automotive industry. Cost of sales decreased to
$24 million in the 2001 first quarter from $26 million in the 2000 first
quarter. The decrease was primarily due to lower volume of flexible graphite
sold for gasket applications and the impact of the restructuring of our graphite
specialties business. Gross profit in the 2001 first quarter was $11 million
(31.4% of net sales), an increase from gross profit in the 2000 first quarter of
$8 million (23.5% of net sales). The increase in gross profit and gross profit
margin was due to the fact that net sales increased and cost of sales decreased.
OPERATING PROFIT FOR US AS A WHOLE. Operating profit in the 2001 first
quarter was $25 million, or 14.6% of net sales, as compared to operating profit
in the 2000 first quarter of $24 million, or 12.3% of net sales. Operating
profit in the 2000 first quarter includes a restructuring charge of $6 million
relating to our graphite specialties business. Excluding the restructuring
charge, operating profit in the 2000 first quarter would have been 15.4% of net
sales, which was higher than in the 2001 first quarter primarily due to higher
gross profit, partially offset by higher selling, administrative and other
expenses.
Selling, administrative and other expense decreased to $21 million in the
2001 first quarter from $24 million in the 2000 first quarter primarily due to
lower variable compensation expense and lower costs related to our POWER OF ONE
initiative.
OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to
$19 million in the 2001 first quarter from $21 million in the 2000 first
quarter. The decrease resulted from lower average annual interest rates and
lower average total debt outstanding. Average outstanding total debt was
$729 million in the 2001 first quarter as compared to $841 million in the 2000
first quarter. The average annual interest rate was 8.8% in the 2001 first
quarter as compared to 9.5% in the 2000 first quarter. These average annual
interest rates exclude imputed interest on the DOJ fine. The decrease in the
average annual interest rate was due primarily to a change in the index for
determining our variable interest rates (from LIBOR to euro LIBOR), partially
offset by an increase in the margin over the index on which our interest rates
are determined.
Provision for income taxes was $2 million in the 2001 first quarter as
compared to nil in the 2000 first quarter. The effective tax rate for the 2001
first quarter was 40%, which was higher than the U.S. federal statutory income
tax rate of 35%. The higher rate in the 2001 first quarter was primarily a
result of the fact that a substantial percentage of our earnings were derived
from higher tax jurisdictions. The effective tax rate for the 2000 first
quarter, excluding the impact of the tax benefit relating to the restructuring
of our graphite specialties business, was 25%. The rate for the 2000 first
quarter was lower than the U.S. federal statutory income tax rate primarily a
result of tax planning
35
strategies, earnings repatriation plans and earnings from consolidated entities
with lower effective tax rates.
In connection with our debt recapitalization, we recorded an extraordinary
charge of $13 million, net of tax, in the 2000 first quarter.
As a result of the changes described above, net income for the 2001 first
quarter was $3 million as compared to net loss for the 2000 first quarter of
$11 million.
2000 COMPARED TO 1999. Net sales in 2000 were $776 million, a decrease of
$55 million, or 7%, from net sales in 1999 of $831 million. Gross profit in 2000
was $216 million, a decrease of $42 million, or 16%, from gross profit in 1999
of $258 million. Gross profit margin in 2000 was 27.8% of net sales as compared
to gross profit margin in 1999 of 31.0% of net sales. The decrease in net sales
and gross profit was primarily due to lower average sales revenue per metric ton
of graphite electrodes and the impact of currency exchange rate changes. The
impact of those factors was partially offset by lower cost of sales per metric
ton of graphite electrodes and higher volumes of graphite electrodes sold. The
lower average sales revenue per metric ton was due primarily to changes in
regional economic conditions, which resulted in a higher percentage of the
volume of our graphite electrodes being sold in non-North American markets that
have lower pricing structures than North American markets, as well as
competitive pricing pressures. The lower cost of sales per metric ton was
primarily due to cost savings and lower average fixed cost per metric ton due to
higher average annual production levels. The decrease in gross profit margin was
primarily due to the fact that the percentage decrease in net sales was greater
than the percentage decrease in cost of sales.
GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased 7%, or $49 million, to
$651 million in 2000 from $700 million in 1999. The decrease was primarily
attributable to a decrease in average sales revenue per metric ton of electrodes
offset by higher sales volumes for electrodes and cathodes. The volume of
graphite electrodes sold increased 11,000 metric tons, or 5%, to 217,000 metric
tons in 2000 as compared to 206,000 metric tons in 1999. The increase in volume
of graphite electrodes sold represented an increase in net sales of about
$28 million. The average sales revenue per metric ton (in U.S. dollars and net
of changes in currency exchange rates) of our graphite electrodes was $2,379 in
2000 as compared to $2,676 in 1999. The reduced average sales revenue of
graphite electrodes per metric ton represented a decrease of about $64 million
in net sales. This reduction was largely attributable to lower graphite
electrode selling prices and, to a lesser extent, changes in product mix.
Currency exchange rate changes for electrode and cathode sales, particularly the
decline in the euro against the dollar, represented a decrease of about
$45 million in net sales. Volume of cathodes sold was 35,000 metric tons in 2000
as compared to 31,000 metric tons in 1999. Cost of sales increased 1%, or
$3 million, to $467 million in 2000 from $464 million in 1999. The increase in
cost of sales was primarily due to higher volume produced, partially offset by
lower average cost of sales per metric ton for graphite electrodes. The average
graphite electrode cost of sales per metric ton was $1,725 in 2000 as compared
to $1,783 in 1999. The reduction in average graphite electrode cost of sales per
metric ton was primarily due to cost savings and lower average fixed cost per
metric ton due to higher production levels and, to lesser extent, changes in
currency exchange rates. Gross profit decreased 22%, or $52 million, to
$184 million (28.3% of net sales) in 2000 from $236 million (33.7% of net sales)
in 1999. The decrease in gross profit margin was primarily due to the fact that
the percentage decrease in net sales was greater than the percentage decrease in
cost of sales.
ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales decreased 5%, or
$6 million, to $125 million in 2000 from $131 million in 1999. The decrease was
primarily attributable to a decrease in net sales of graphite specialties due to
the elimination of certain product lines in connection with the restructuring of
our graphite specialties business and, to a lesser extent, lower prices for
graphite specialties. Cost of sales decreased 15%, or $16 million, to
$93 million in 2000 from $109 million in 1999. The decline was primarily due to
the write-down of graphite specialties inventory in 1999 and the elimination of
certain
36
graphite specialties product lines. As a result of the changes described above,
gross profit increased 45%, or $10 million, to $32 million (25.6% of net sales)
in 2000 from $22 million (16.8% of net sales) in 1999. Excluding the $8 million
write-down of graphite specialties inventory in 1999, gross profit margin
increased to 25.6% in 2000 from 22.9% in 1999. The increase in gross profit
margin was due to the fact that the decline in cost of sales exceeded the
decline in net sales.
OPERATING PROFIT OF US AS A WHOLE. Operating profit was $111 million, or
14.3% of net sales, in 2000 as compared to $130 million, or 15.6% of net sales,
in 1999. Operating profit in 2000 was impacted by a $2 million write-off of
costs incurred in connection with a proposed initial public offering by Graftech
that was postponed as well as an aggregate of $9 million in special items
consisting of a net restructuring charge relating to our graphite specialties
business, an impairment loss on long-lived cathode assets and a corporate
restructuring involving a workforce reduction. Operating profit in 1999 was
impacted by a $35 million impairment loss on long-lived graphite specialties
assets, a $13 million charge for the settlement of securities class action and
stockholder derivative lawsuits, and a $6 million restructuring credit related
to plant closure activities. Excluding these special items, operating profit in
2000 was $50 million lower than in 1999 due mainly to lower gross profit and
lower other (income) expense, net.
Selling, administrative and other expense was relatively stable at
$86 million in both 2000 and 1999.
Other (income) expense, net was nil in 2000 as compared to income of
$9 million in 1999. The change was primarily due to the incurrence in 2000 of
$4 million in consulting fees associated with the POWER OF ONE initiative,
$3 million of legal expenses associated with our lawsuit against our former
parents and $2 million in costs associated with the proposed initial public
offering by Graftech that were not incurred in 1999. We recorded income in both
periods resulting from various activities, including gains from currency
transactions, asset sales and insurance and financial instrument related
activities.
OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense decreased to
$75 million in 2000 from $84 million in 1999. The decrease primarily resulted
from our refinancing completed in February 2000, which resulted in a decrease in
our average annual interest rate. Our average outstanding total debt was
$762 million in 2000 as compared to $782 million in 1999 and our average annual
interest rate was 9.1% in 2000 as compared to 10.7% in 1999. These average
annual interest rates exclude imputed interest on the DOJ fine.
Provision for income taxes was $10 million for 2000 as compared to
$1 million for 1999. During 2000, the provision for income taxes reflected a 30%
effective rate, excluding the impact of the write off of costs incurred in
connection with the proposed initial public offering by Graftech, that was
postponed, and the impact of restructuring charges (credits) and impairment
losses. This is lower than the U.S. federal income tax rate of 35% primarily as
a result of tax planning strategies, earnings repatriation plans, tax
settlements, re-assessment of valuation allowances, and earnings resulting from
consolidated entities with lower effective rates. For 1999, the provision for
income taxes reflected a 23% effective rate. The increase in the effective rate
in 2000 was primarily due to a high proportion of income from higher tax
jurisdictions, which was partially offset by a $20 million reduction in the
deferred tax asset valuation allowance on foreign tax credits. This reduction
was based on a re-assessment in 2000 of our U.S. tax profile and associated tax
planning strategies.
As a result of the changes described above, net income was $10 million in
2000, a decrease of $32 million from net income of $42 million in 1999.
1999 COMPARED TO 1998. Net sales in 1999 were $831 million, a decrease of
$116 million, or 12%, from net sales in 1998 of $947 million. Gross profit in
1999 was $258 million, a decrease of $85 million, or 25%, from gross profit in
1998 of $343 million. Gross profit margin in 1999 was 31.0% of net sales
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as compared to gross profit margin in 1998 of 36.2% of net sales. The decrease
in net sales and gross profit was primarily due to lower sales revenue per
metric ton of graphite electrodes and lower volumes of graphite electrodes sold,
and the impact of currency exchange rate changes. The impact of those factors
was partially offset by lower cost of sales. The lower sales revenue per metric
ton and volumes were due primarily to changes in global economic conditions that
reduced demand for steel and other metals and changes in industry conditions.
This, in turn, reduced demand and price for many of our products, particularly
graphite electrodes. Lower cost of sales was primarily due to cost savings under
our global rationalization and restructuring plan, partially offset by lower
production levels of graphite electrodes which had the effect of increasing the
average fixed cost per ton of graphite electrodes produced. The decrease in
gross profit margin was primarily due to the fact that the percentage decrease
in net sales was greater than the percentage decrease in cost of sales.
GRAPHITE POWER SYSTEMS DIVISION. Net sales decreased 12%, or $97 million,
to $700 million in 1999 from $797 million in 1998. The decrease was primarily
attributable to a decrease in average sales revenue per metric ton for
electrodes. The average sales revenue per metric ton (in U.S. dollars and net of
changes in currency exchange rates) of our graphite electrodes was $2,676 in
1999 as compared to $3,013 in 1998. The reduced average sales revenue of
graphite electrodes per metric ton represented a decrease of about $74 million
in net sales. Currency exchange rate changes for graphite electrodes accounted
for about $43 million of the $74 million decrease in net sales. The balance of
the $74 million decrease in net sales was largely attributable to lower graphite
electrode selling prices and, to a lesser extent, changes in product mix. The
volume of graphite electrodes sold decreased 5,000 metric tons, or 2%, to
206,000 metric tons in 1999 as compared to 211,000 metric tons in 1998. The
decrease in volume of graphite electrodes sold represented a decrease in net
sales of about $16 million. Volume of cathodes sold was 31,000 metric tons in
1999 as compared to 33,000 metric tons in 1998. Cost of sales decreased 8%, or
$38 million, to $464 million in 1999 from $502 million in 1998. The decrease in
cost of sales was primarily due to lower volume and lower average graphite
electrode cost per metric ton. The average graphite electrode cost per metric
ton was $1,783 in 1999 as compared to $1,920 in 1998. The reduction in average
graphite electrode cost per metric ton was due to cost savings under our global
restructuring and rationalization plan, and to a lesser extent, changes in
currency exchange rates. The impact of the cost savings was partially offset by
the lower production levels and work-in-process inventory reduction efforts,
both of which had the effect of increasing the average fixed cost per ton
produced. Gross profit decreased 20%, or $59 million, to $236 million (33.7% of
net sales) in 1999 from $295 million (37.0% of net sales) in 1998. The decrease
in gross profit margin was primarily due to the fact that the percentage
decrease in net sales was greater than the percentage decrease in cost of sales.
ADVANCED ENERGY TECHNOLOGY DIVISION. Net sales decreased 13%, or
$19 million, to $131 million in 1999 from $150 million in 1998. The decrease was
primarily attributable to global economic conditions that resulted in lower
demand for graphite specialties, particularly those sold to certain segments of
the semiconductor industry and, to a lesser extent, those sold to the aerospace
and aircraft industries, lower prices for graphite specialties, and lower prices
of our flexible graphite products sold to the internal combustion market. Cost
of sales increased 7%, or $7 million, to $109 million in 1999 from $102 million
in 1998. The increase was primarily due to the cost per ton increase resulting
from changes in product mix and lower operating levels, particularly at our
graphite specialties manufacturing facilities, an $8 million write-down of
graphite specialties inventory in 1999 and were partially offset by cost savings
under our global rationalization and restructuring plan. As a result of the
changes described above, gross profit decreased 54%, or $26 million, to
$22 million (16.8% of net sales) in 1999 from $48 million (32.0% of net sales)
in 1998. Excluding the $8 million write-down of graphite specialties inventory
in 1999, gross profit margin decreased to 22.9% in 1999 from 32.0% in 1998. The
decrease in gross profit margin was due to the fact that the decline in net
sales exceeded the decline in cost of sales.
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OPERATING PROFIT OF US AS A WHOLE. Operating profit was $130 million, or
15.6% of net sales, in 1999 as compared to $77 million, or 8.1% of net sales, in
1998. Operating profit in 1999 was impacted by a $35 million impairment loss on
long-lived graphite specialties assets, a $13 million charge for the settlement
of securities class action and stockholder derivative lawsuits, and a
$6 million restructuring credit related to plant closure activities. Operating
profit in 1998 was impacted by an $86 million restructuring charge and a
$60 million impairment loss on long-lived Russian assets. Excluding those
charges, credit and impairment losses, operating profit in 1999 was lower than
in 1998 due to lower gross profit, partially offset by lower selling,
administrative and other expense and an improvement of $17 million in other
(income) expense net.
Selling, administrative and other expense decreased $17 million, or 17%, to
$86 million in 1999 from $103 million in 1998, primarily due to lower corporate
administration expenses resulting from cost savings under our global
rationalization and restructuring plan and, to a lesser extent, a decrease of
about $3 million in variable compensation expense due to lower earnings.
Other (income) expense, net was income of $9 million in 1999 as compared to
expense of $8 million in 1998. The change was primarily due to a $10 million
reduction in consulting fees associated with projects that we initiated in 1997
to integrate worldwide operations, improve operating efficiencies and generate
earnings growth and a gain of $2 million on the sale of the assets of our spray
cooled systems business, partially offset by a $6 million reduction in interest
income due to a reduction in short-term investments.
OTHER ITEMS AFFECTING US AS A WHOLE. Interest expense increased to
$84 million in 1999 from $73 million in 1998. The increase primarily resulted
from higher average annual interest rates. Our average outstanding total debt
was $782 million in 1999 as compared to $783 million in 1998. Our average annual
interest rate was 10.7% in 1999 as compared to 8.8% in 1998. These average
annual interest rates exclude imputed interest on the DOJ fine. The increase in
the average annual interest rate was due to an increase in the margin over LIBOR
which we paid under the Existing Senior Facilities as a result of the
refinancing completed in November 1998, partially offset by a decrease in LIBOR.
We incurred additional debt in 1998 and 1999 to finance a portion of the fines
and settlements paid in connection with antitrust, securities and stockholder
derivative investigations, lawsuits and claims.
Provision for income taxes was $1 million for 1999 as compared to
$32 million for 1998. During 1999, the provision for income taxes reflected a
23% effective rate, excluding the impact of the settlement of the securities
class action and stockholder derivative lawsuits, the impairment loss on
long-lived graphite specialties assets, the write-down of graphite specialties
inventory and the restructuring credit. This is lower than the U.S. federal
income tax rate of 35% primarily as a result of tax planning strategies,
earnings repatriation plans, tax settlements, assessment of valuation
allowances, re-assessment of reserves, and earnings resulting from consolidated
entities with lower effective rates. For 1998, the provision for income taxes
reflected a 29% effective rate, excluding the impact of the restructuring charge
and the impairment loss on long-lived Russian assets.
As a result of the changes described above, net income was $42 million in
1999, an increase of $79 million from a net loss of $37 million in 1998.
EFFECTS OF INFLATION
In general, our results of operations and financial condition are affected
by the inflation in each country in which we have a manufacturing facility.
During 1998 through the 2000 first half, the effects of inflation on our cost of
sales in the U.S. and foreign countries (except for highly inflationary
countries) have been generally offset by a combination of improved operating
efficiency and permanent on-going cost savings. Accordingly, during that period,
these effects were not material to us. Beginning in mid-2000, we began to
experience higher energy and raw material costs primarily due to the
39
substantial increase in the worldwide market price of oil and natural gas. We
cannot assure you that future increases in our costs will not exceed the rate of
inflation or the amounts, if any, by which we may be able to increase prices for
our products.
We account for our non-U.S. subsidiaries under the provisions of Statement
of Financial Accounting Standards ("SFAS") 52, "Foreign Currency Translation."
Accordingly, their assets and liabilities are translated into dollars for
consolidation and reporting purposes. Foreign currency translation adjustments
are generally recorded as part of stockholders' equity and identified as
accumulated other comprehensive income (loss) in the Consolidated Balance Sheets
until such time as their operations are sold or substantially or completely
liquidated.
We maintain operations in Brazil, Russia and Mexico, countries which have
had in the past, and may have now or in the future, highly inflationary
economies, defined as cumulative inflation of about 100% or more over a
three-calendar year period. In general, the financial statements of foreign
operations in highly inflationary economies have been remeasured as if the
functional currency of their economic environments were the dollar and
translation gains and losses relating to these foreign operations are included
in other (income) expense, net in the Consolidated Statements of Operations
rather than as part of stockholders' equity in the Consolidated Balance Sheets.
In light of significant increases in inflation in Mexico, effective
January 1, 1997, Mexico was considered to have a highly inflationary economy.
Accordingly, translation gains and losses for our Mexican operations were
included in the Consolidated Statements of Operations for 1998. In 1999, we
began to account for our Mexican subsidiary using the dollar as its functional
currency, irrespective of Mexico's inflationary status, because its sales and
purchases are predominantly dollar-denominated.
We have always considered Russia to have a highly inflationary economy.
Accordingly, translation gains and losses for our Russian operations are
included in the Consolidated Statements of Operations in 1998, 1999 and 2000.
Prior to August 1, 2000, our Swiss subsidiary used the 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.
Foreign currency translation adjustments decreasing stockholders' equity
amounted to $27 million in 1998, $48 million, including $33 million associated
with our Brazilian subsidiary, in 1999 and $35 million in 2000.
EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES
We incur manufacturing costs and sell our products in multiple currencies.
As a result, in general, our results of operations, cash flows and financial
condition are affected by changes in currency exchange rates as well as 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 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 (or which use the dollar as their
functional currency) 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.
When the local currencies of foreign countries in which we have a
manufacturing facility decline (or increase) in value relative to the dollar,
this has the effect of reducing (or increasing) the dollar equivalent cost of
sales and other expenses with respect to those facilities. This effect is,
however, partially offset by the cost of petroleum coke, a principal raw
material used by us, which is priced in
40
dollars. We price products manufactured at our facilities for sale in local and
certain export markets in local currencies. Accordingly, when the local
currencies increase (or decline) in value relative to the dollar, this has the
effect of increasing (or reducing) net sales. The result of these effects is to
increase (or decrease) operating profit and net income.
During 1998 through the 2000 first quarter, many of the currencies in which
we manufacture and sell our products weakened against the dollar. Since late
1998, the Brazilian economy has been subject to various economic pressures.
Inflation substantially increased and economic activity began to decline. In
1999, the Brazilian real substantially devalued. During 2000, the South African
rand declined about 19%, the euro declined about 6% and the Brazilian real
declined about 8%. During the 2001 first quarter, the euro declined about 6%,
the Brazilian real declined about 10% and the South African rand declined about
6%. The net impact of currency changes included in other (income) expense, net
was a gain of $2 million in 1998, a gain of $2 million in 1999 and a gain of
$4 million in 2000. In the case of net sales of graphite electrodes, the impact
was a reduction of $34 million in 1998, a reduction of $19 million in 1999
(excluding $24 million in 1999 due to the lowering of prices by our Brazilian
subsidiary because of competitive cost advantages resulting from the decline in
the Brazilian real) and a reduction of $36 million in 2000. We sought to
mitigate these adverse impacts on net sales by increasing local currency prices
for some of our products in various regions as circumstances permitted. We
cannot predict changes in currency exchange rates in the future or whether those
changes will have positive or negative impacts on our net sales or cost of
sales. We cannot assure you that we would be able to mitigate any adverse
effects of such changes.
To manage certain exposures to specific financial market risks caused by
changes in currency exchange rates, we use various financial instruments. The
amount of currency exchange contracts used by us to minimize these risks was
$484 million at December 31, 1998, $233 million at December 31, 1999 and
$69 million in 2000.
Total outstanding dollar-denominated debt of our foreign subsidiaries
(excluding our Russian and Mexican subsidiaries (and, at December 31, 1999, our
Swiss subsidiary) which used the dollar as their functional currency) was
$158 million at December 31, 1999 and nil at December 31, 2000. Changes in the
currency exchange rates between the dollar and the currencies in the countries
in which these excluded subsidiaries are located result in foreign currency
gains and losses that are reported in other (income) expense, net in the
Consolidated Statements of Operations.
Our foreign subsidiaries with dollar-denominated debt have entered into
foreign currency contracts to protect against changes in currency exchange
rates. The amount of such contracts was $209 million at December 31, 1998 and
$129 million at December 31, 1999 and $61 million at December 31, 2000. We
believe that such contracts reduce our exposure to changes in currency exchange
rates related to such borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Our sources of funds have consisted principally of invested capital, cash
flow from operations and debt financing. Our uses of those funds (other than for
operations) have consisted principally of debt service, capital expenditures and
payment of fines, liabilities and expenses in connection with antitrust
investigations, lawsuits and claims.
We are highly leveraged and have substantial obligations in connection with
antitrust investigations, lawsuits and claims. We had total debt of
$715 million and a stockholders' deficit of $320 million at March 31, 2001, as
compared to total debt of $735 million and a stockholders' deficit of
$316 million at December 31, 2000 and total debt of $722 million and a
stockholders' deficit of $293 million at December 31, 1999. Our leverage and
obligations, as well as changes in conditions affecting our industry, changes in
global and regional economic conditions and other factors, have adversely
impacted our recent operating results.
41
Cash, cash equivalents and short-term investments were $56 million at
March 31, 2001 as compared to $47 million at December 31, 2000 and $20 million
at December 31, 1999. Net debt (which is total debt, net of cash, cash
equivalents and short-term investments) was $659 million at March 31, 2001 as
compared to $688 million at December 31, 2000 and $702 million at December 31,
1999.
OVERVIEW OF DEBT FINANCING. In connection with our leveraged equity
recapitalization in 1995, we obtained senior credit facilities which provided
for borrowings of up to $685 million, of which $585 million was used at that
time. We also issued $375 million of Subordinated Notes, $175 million of which
were redeemed in 1995. In October 1995, we replaced those senior credit
facilities with the Prior Senior Facilities, which had more favorable interest
rates and covenants. The Prior Senior Facilities initially provided for
borrowings of up to $620 million, of which $520 million was used at that time.
In March 1997, the Prior Senior Facilities were amended to reduce interest
rates, increase our revolving credit facility and change certain covenants to
allow greater flexibility.
In April 1998, we obtained a limited waiver of breaches, if any, of certain
covenants of the Prior Senior Facilities. We also agreed to amend certain
provisions of the Prior Senior Facilities. These amendments had the effect of
increasing interest rates paid by us. In addition, we were able to borrow an
additional $35 million under our revolving credit facility. Under the
Subordinated Notes, subject to certain exceptions, we could not incur additional
indebtedness if our adjusted coverage ratio was less than certain specified
ratios. In April 1998, as a result of the $340 million charge, our adjusted
coverage ratio was less than those specified ratios. As a result, under the
Subordinated Notes, we could not, with limited exceptions, incur additional
indebtedness (even under the Prior Senior Facilities).
In November 1998, we refinanced the Prior Senior Facilities and amended the
Subordinated Notes. The refinancing consisted of the addition of a new
$210 million senior secured term debt facility to the Prior Senior Facilities
and the amendment of the Prior Senior Facilities. Together, these enabled us to
incur additional debt in the refinancing and to have the ability (subject to
compliance with applicable covenants) to borrow under our revolving credit
facility.
DESCRIPTION OF NEW SENIOR FACILITIES. In February 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, to repay certain other debt and to pay related expenses.
In October 2000, the 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 recapitalization).
In April 2001, the New Senior Facilities were amended to, among other
things, exclude certain expenses incurred in connection with the lawsuit
initiated by us against our former parents (up to a maximum of $20 million, but
not more than $3 million in any quarter) and certain charges and payments in
connection with antitrust fines, settlements and expenses, from the calculation
of financial covenants. Charges (over and above the $340 million charge recorded
in 1997) recorded on or before June 30, 2002 for antitrust fines, settlements
and expenses are excluded from the calculation of financial covenants (until
paid) up to a maximum of $130 million (reduced by the amount of certain debt
incurred by us that is not incurred under the New Senior Facilities, $6 million
of which debt was outstanding at March 31, 2001). In the case of any fine
assessed by the antitrust authority of the European Union, any new charges and
any payments up to a maximum of $80 million (including payments within the
$340 million charge recorded in 1997), are excluded from the calculation of
financial covenants through June 30, 2002.
In connection with this offering, we are in discussions with our lenders
under the New Senior Facilities to change our financial covenants so that they
would be less restrictive than would otherwise be the case.
42
The New Senior Facilities, as amended, consist of:
- A Tranche A Facility providing for initial term loans of $137 million and
of E161 million to UCAR Finance Inc., a direct wholly owned special
purpose finance subsidiary of UCAR. The Tranche A Facility amortizes in
quarterly installments over six years, commencing June 30, 2000, with
quarterly installments ranging from about E2 million in 2000 to about
E17 million in 2005, with the final installment payable on December 31,
2005. In October 2000 we converted $78 million from dollar-denominated to
euro-denominated debt. The principal payments due in 2001 total
$23 million.
- 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 about $41 million in 2006
and 2007, with the final installment payable on December 31, 2007. The
principal payments due in 2001 total $4 million.
- A Revolving Facility providing for revolving and swingline loans to, and
the issuance of dollar-denominated letters of credit for the account of,
UCAR Finance and certain of our other subsidiaries in an aggregate
principal and stated amount at any time not to exceed E250 million. 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 aggregate amount of payments made (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:
- Either 75% or 50% (depending on our leverage ratio, which is the ratio of
our adjusted net debt to our 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.
- 100% of the net proceeds of certain asset sales or incurrence of certain
indebtedness.
- 50% of the net proceeds of the issuance of any UCAR equity securities.
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 secured and guaranteed intercompany loans of the net
proceeds of borrowings under the New Senior Facilities to UCAR Global'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.
UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed,
with certain exceptions, the obligations of UCAR Global's subsidiaries under the
intercompany loans, except that our foreign subsidiaries have not guaranteed
intercompany loan obligations of our U.S. subsidiaries.
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.
43
The interest rates, as amended, 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 with
the New Senior Facilities.
The New Senior Facilities contain a number of significant covenants that,
among other things, restrict our ability to sell assets, incur additional
indebtedness, repay or refinance other debt or amend other debt instruments,
create liens on assets, enter into leases, investments or acquisitions, engage
in mergers or consolidations, make capital expenditures, make dividend payments
to UCAR, pay intercompany debt owed to UCAR, engage in transactions with
affiliates, or pay dividends or make other restricted payments and that
otherwise 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 Graftech and may also distribute the capital stock of Graftech to
UCAR. In addition, we are required to comply with specified minimum interest
coverage and maximum leverage ratios, which become more restrictive over time,
beginning September 30, 2001.
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 applicable covenants; failure to pay when due, or other defaults 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.
Under the New Senior Facilities, UCAR is 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.
UCAR Global is, however, also permitted to pay dividends to UCAR of up to
$15 million for the purpose of making an investment in Graftech and may also
distribute the capital stock of Graftech to UCAR.
CASH FLOW AND PLANS TO MANAGE LIQUIDITY. For at least the past five years,
we have had positive annual cash flow from operations, excluding payments in
connection with restructurings, investigations, lawsuits and claims. Typically,
the first quarter of each year results in neutral or negative cash flow from
operations (after deducting cash used for capital expenditures and excluding
payments in connection with restructurings and investigations, lawsuits and
claims and payments of interest on the Subordinated Notes (which have since been
redeemed)) due to various factors. These factors include customer order
patterns, customer buy-ins in advance of annual price increases, and payment of
variable compensation with respect to the immediately preceding year. Typically,
the other three quarters result in significant positive cash flow from
operations (after deducting cash used for capital expenditures and excluding
those payments). The third quarter tends to produce relatively less positive
cash flow primarily as a result of scheduled plant shutdowns by our customers
for vacations. We believe that 2001 will follow this historical pattern.
To minimize interest expense, except for our Brazilian subsidiary prior to
mid-1999, we attempt to operate on a "zero-cash" basis. This means that we use,
and are dependent on, funds available under
44
our revolving credit facility, including continued compliance with the financial
covenants under the New Senior Facilities, as well as monthly or quarterly cash
flow from operations as our primary sources of liquidity. We believe that our
cost savings will, over the next one to two years, continue to improve our cash
flow from operations for a given level of net sales. Among other things, we are
seeking to improve cash flow from operations through improvements in sales and
operations planning, cash management (including accounts payable and receivable
management), production scheduling and inventory management. Improvements in
cash flow from operations resulting from these initiatives are being partially
offset by associated cash implementation costs, while they are being
implemented.
Our high leverage and substantial obligations in connection with antitrust
investigations, lawsuits and claims could have a material impact on our
liquidity. Cash flow from operations services payment of our debt and these
obligations, thereby reducing funds available to us for other purposes. Our
leverage and these obligations make us more vulnerable to economic downturns and
make us more vulnerable in the event that these obligations (including any fine
which may be assessed by the antitrust authority of the European Union) are
greater or the timing of payment is sooner than expected.
Our ability to service our debt, as it comes due, including maintaining
compliance with the covenants under the New Senior Facilities, and to meet these
and other obligations as they come due is dependent on our future financial and
operating performance. This performance, in turn is subject to various factors,
including certain factors beyond our control, such as changes in conditions
affecting our industry, changes in global and regional economic conditions,
changes in interest and currency exchange rates, developments in antitrust
investigations, lawsuits and claims involving us and inflation in raw material,
energy and other costs. While there is no requirement as to when fines, if any,
must be assessed, we believe that it is likely that any fines which may be
assessed by the antitrust authority of the European Union will be assessed
during the 2001 third quarter.
We cannot assure you that our cash flow from operations and capital
resources will be sufficient to enable us to meet our debt service and other
obligations when due. Even if we are able to meet our debt service and other
obligations when due, we may not be able to comply with the financial covenants
under the New Senior Facilities. A failure to so comply, unless waived by the
lenders thereunder, would be a default thereunder. This would permit the lenders
to accelerate the maturity of substantially all of our debt. It would also
permit them to terminate their commitments to extend credit under our revolving
credit facility. This would have an immediate material adverse effect on our
liquidity. If we were unable to repay our debt to the lenders, the lenders could
proceed against the collateral securing the New Senior Facilities and exercise
all other rights available to them. In either such case, we could be required to
limit or discontinue, temporarily or permanently, certain of our business plans,
activities or operations, reduce or delay certain capital expenditures, sell
certain of our assets or businesses, restructure or refinance some or all of our
debt or incur additional debt, or sell additional common stock or other
securities. We cannot assure you that we would be able to obtain any such waiver
or take any of such actions on favorable terms or at all.
We are dependent on our revolving credit facility and continuing compliance
with the financial covenants under the New Senior Facilities for liquidity. The
New Senior Facilities require us to, among other things, comply with specified
minimum interest coverage and maximum leverage ratios. In October 2000 and
April 2001, we obtained amendments to the New Senior Facilities. The amendments,
among other things, increase the maximum leverage ratio permitted thereunder
through June 30, 2001 and exclude certain litigation expenses and antitrust
charges and payments from the calculation of financial covenants through
June 30, 2002 and in certain cases thereafter. Beginning September 30, 2001, the
ratios become more restrictive. At March 31, 2001, we were in compliance with
those financial covenants. In connection with this offering, we are in
discussions with our lenders under the New Senior Facilities to change our
financial covenants so that they would be less restrictive than would otherwise
be the case.
While our revolving credit facility provides for maximum borrowings of up to
E250 million, our current ability to borrow under this facility is effectively
substantially less than the maximum due to the
45
impact additional borrowings under this facility would have on our compliance
with the maximum leverage ratio permitted under the New Senior Facilities.
While no assurances can be made, we believe we will comply with the
covenants under the New Senior Facilities through 2001. If we subsequently
believe that we will not continue to comply with such covenants, we will seek an
appropriate waiver or amendment from the lenders thereunder. There can be no
assurance that we will be able to obtain such waiver or amendment on acceptable
terms or at all.
We believe that the long-term fundamentals of our business continue to be
sound. Accordingly, although we cannot assure you that such will be the case, we
believe, based upon our expected cash flow from operations, our expected
resolution of our remaining obligations in connection with antitrust
investigations, lawsuits and claims, and existing capital resources, and taking
into account our efforts to reduce costs and working capital needs, improve
efficiencies and product quality, generate growth and earnings and maximize
funds available to meet our debt service and other obligations, we will be able
to manage our working capital and cash flow to permit us to service our debt and
meet our obligations as they become due.
CASH FLOW PROVIDED BY OPERATING ACTIVITIES. Cash flow provided by operating
activities was $11 million in the 2001 first quarter as compared to cash flow
provided by operating activities of $14 million in the 2000 first quarter. The
decreased generation of cash flow of $3 million resulted primarily from changes
in non-cash charges.
Cash flow provided by operations was $94 million in 2000 as compared to cash
flow provided by operations of $80 million in 1999. This improvement of
$14 million resulted primarily from a lower use of cash flow for working capital
of approximately $91 million, offset by lower net income.
Working capital was a source of $43 million of cash flow in 2000, an
improvement of $91 million from a use of $48 million of cash flow in 1999. The
improvement occurred primarily due to a $22 million increase in accounts payable
and accruals, a $41 million reduction in payment of fines and net settlements
and expense payments in connection with antitrust investigations and related
lawsuits and claims, a $16 million reduction in restructuring payments, and the
use of $12 million for settlement of the securities class action and stockholder
derivative lawsuits in 1999 that was not used in 2000.
Cash flow provided by operations was $80 million in 1999 as compared to cash
flow used in operations of $29 million in 1998. This improvement of
$109 million resulted primarily from a lower use of cash flow for working
capital of approximately $111 million, partially offset by lower net income of
approximately $3 million and a decreased use of cash associated with long term
assets and liabilities of $1 million.
Use of cash flow for working capital was $48 million in 1999, an improvement
of $111 million from a use of $159 million in 1998. The improvement occurred
despite the use of $64 million for payment of fines and net settlements and
expense payments in connection with antitrust investigations and related
lawsuits and claims (as compared to $142 million in 1998), the use of
$12 million for settlement of the securities class action and stockholder
derivative lawsuits, and the use of $23 million for restructuring payments
during 1999.
The working capital improvement was due primarily to reductions in the use
of cash of $60 million for inventories ($27 million use of cash in 1998 as
compared to $33 million source of cash in 1999), $38 million for payables and
accruals ($38 million use of cash in 1998 as compared to nil use of cash in
1999), and $4 million for prepaid expenses and other assets, partially offset by
an increase in the use of cash of $34 million for receivables ($49 million
source of cash in 1998 as compared to $15 million source of cash in 1999). These
improvements resulted primarily from improved cash and inventory management.
CASH FLOW USED IN INVESTING ACTIVITIES. We used $4 million of cash flow for
investing activities during the 2001 first quarter as compared to $7 million
during the 2000 first quarter. This reduction of $3 million was primarily due to
a reduction in cash flow used for capital expenditures. We expect that our
capital expenditures in 2001 will be about the same as in 2000.
46
We used $50 million of cash flow in investing activities during 2000,
primarily for capital expenditures, as compared to $39 million during 1999. The
net increase of $11 million was primarily due to decline in cash proceeds from
the sale of assets of $8 million in 2000 as compared to 1999. Capital
expenditures decreased to $52 million in 2000 from $56 million in 1999. Capital
expenditures in 2000 related primarily to our new flexible graphite
manufacturing line, our POWER OF ONE initiative and capital equipment
replacement.
We used $39 million of cash flow in investing activities during 1999 as
compared to $31 million during 1998. This increase of $8 million was primarily
due to an increase in cash used for capital expenditures (net of a capital
incentive grant) of $7 million and a reduction in cash used in short term
investments by our Brazilian subsidiary of $1 million. Cash provided from the
sale of assets was $9 million in both 1999 and 1998.
CASH FLOW PROVIDED BY (USED) IN FINANCING ACTIVITIES. Cash flow provided by
financing activities was $4 million for the 2001 first quarter as compared to
cash used in financing activities of $9 million in the 2000 first quarter.
During the 2001 first quarter, we received $9 million from an additional
minority investment in connection with the broadening of our strategic alliance
in the cathode business with Pechiney. During the 2000 first quarter, we
incurred $28 million of costs in connection with our debt recapitalization in
February 2000, of which we paid $25 million in the 2000 first quarter.
Cash flow used in financing activities was $13 million in 2000 as compared
to $80 million in 1999. The change was primarily due to lower borrowings in 2000
as compared to 1999. We made $14 million in net debt repayments in 2000 as
compared to $80 million of net borrowings in 1999. This $94 million change was
offset by $28 million in costs related to our debt recapitalization in
February 2000.
Cash flow used in financing activities was $80 million in 1999 as compared
to cash provided by financing activities of $62 million in 1998. Financing
activities from long-term debt consisted of $62 million of net payments under
the Existing Senior Facilities (including the revolving credit facility) in 1999
as compared to $128 million of net borrowings in 1998. The net payments made in
1999 were funded primarily through improved cash and inventory management and
decreased working capital requirements as compared to 1998. Net short-term debt
reductions were $18 million in 1999 as compared to $58 million in 1998. Net
short-term debt reductions were lower in 1999 due to lower short-term borrowings
by our Brazilian subsidiary and lower borrowings by other non-U.S. subsidiaries
to meet local cash needs.
RESEARCH AND DEVELOPMENT EXPENSES
Our research and development expenses were $9 million in each of 1998 and
1999 and $11 million in 2000.
RESTRICTIONS ON DIVIDENDS AND STOCK REPURCHASES
Under the New Senior Facilities, we are generally permitted to pay dividends
on common stock and repurchase common stock in an aggregate amount of up to
between $25 million and $50 million, depending on our leverage ratio and excess
cash flow.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board ("FASB"), issued
FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock
Compensation--An Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
provides guidance for issues that have arisen in applying APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Our existing accounting policies
conformed to the requirements of FIN 44. Therefore, adoption of FIN 44 did not
impact our results of operations, cash flows or financial position.
47
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on
recognition, presentation and disclosure of revenues in financial statements.
SAB 101, as amended by the SEC, was adopted by us in the 2000 fourth quarter.
Adoption of SAB 101 did not impact our results of operations, cash flows or
financial position.
In September 2000, the FASB issued Statement of Financial Accounting
Standard ("SFAS") 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS 140"), a replacement of
SFAS 125 which has the same title. SFAS 140 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings, and requires certain additional disclosures. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001, and is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. We
believe that SFAS 140 will not impact our results of operations, cash flows or
financial position.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 was later amended by
SFAS 137 and SFAS 138. SFAS 133, as amended, requires recognition of the fair
value of all derivative instruments, including certain derivative instruments
embedded in other contracts (collectively called derivatives), on the balance
sheet and establishes new accounting rules for hedging activities. We were
required to adopt SFAS 133, as amended, on January 1, 2001. The adoption did not
impact our results of operations, cash flows or financial position.
COSTS RELATING TO PROTECTION OF THE ENVIRONMENT
We have been and are subject to increasingly stringent environmental
protection laws and regulations. In addition, we have an on-going commitment to
rigorous internal environmental protection standards. The following table sets
forth certain information regarding environmental expenses and capital
expenditures.
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1999 2000
-------- --------------- --------
(DOLLARS IN MILLIONS)
Expenses relating to environmental protection... $12 $13 $14
Capital expenditures related to environmental
protection.................................... 8 4 6
48
BUSINESS
THE COMPANY
We are one of the world's largest providers of natural and synthetic
graphite and carbon products and services. Our products provide energy solutions
to customers in the steel, aluminum, fuel cell power generation, electronics,
semiconductor and transportation industries. Our customers include industry
leaders such as Nucor Corporation and the Arbed Group in steel, Alcoa Inc. and
Pechiney in aluminum, Ballard in fuel cells, Intel Corporation in electronics,
MEMC Electronic Materials, Inc. in semiconductors and The Boeing Company in
transportation. With over 100 years of experience in the development of graphite
and carbon technology, we currently hold about 320 issued patents and about 280
patent applications and perfected patent application priority rights worldwide
and conduct extensive state-of-the-art research and development activities in
both the U.S. and Europe. We have a global business, selling our products and
engineering and technical services in more than 80 countries, with 15
manufacturing facilities strategically located in Brazil, France, Italy, Mexico,
Russia, South Africa, Spain and the U.S. and a joint venture manufacturing
facility located in China, which, subject to required Chinese governmental
approvals, is expected to commence operations in 2002. As a result of our
experience, technology and manufacturing capability, we believe that we have the
largest worldwide market share in all of our major product lines.
In June 1998, we began to implement management changes which have resulted
in a new senior management team. This team has actively lowered costs, reduced
debt and developed growth initiatives. In early 2001, we launched a strategic
initiative to strengthen our competitive position and to change our corporate
vision from an industrial products company to an energy solutions company. In
connection with this initiative, we have realigned our company and management
around two new operating divisions, our Graphite Power Systems Division and our
Advanced Energy Technology Division.
GRAPHITE POWER SYSTEMS DIVISION
INTRODUCTION
Our Graphite Power Systems Division delivers high quality graphite and
carbon electrodes and cathodes and related services that are key components of
the conductive power systems used to produce steel, aluminum, and other
non-ferrous metals. We are the leading producer of graphite and carbon
electrodes and cathodes in the world. In 2000, net sales of this division were
$651 million, with gross profit of $184 million.
Graphite electrodes, which accounted for about 81% of the division's net
sales in 2000, are a key component in the production of steel in electric arc
furnaces, the steelmaking technology used by all "mini-mills", the higher growth
sector of the steel industry. Electrodes act as conductors of electricity in a
furnace, generating sufficient heat to melt scrap metal and other raw materials.
There is currently no commercially viable substitute for graphite electrodes in
electric arc furnaces. They are the only product that combines the required
level of electrical conductivity with the ability to withstand the high levels
of heat generated during the production of steel in electric arc furnaces.
Graphite electrodes are also used for refining steel in ladle furnaces and in
other smelting processes. Carbon electrodes are used in a similar fashion in the
production of silicon metal, a raw material used in the manufacture of aluminum.
Graphite and carbon cathodes are key components in the conductive power
systems used in aluminum smelting furnaces. We have used our expertise in
graphite technology and high temperature industrial applications together with
the technology of our strategic partner, Pechiney, the world's leading provider
of aluminum smelting technology, to develop significant improvements in graphite
cathodes. Graphite cathodes are the preferred technology for new smelting
furnaces in the aluminum industry because they allow for substantial
improvements in process efficiency. We believe that our improved graphite
cathodes position us well to receive incremental orders upon the commencement of
operation of the new, more efficient smelting furnaces that are being built,
even as older furnaces are being shut down.
49
We believe this division is positioned to benefit from the expected cyclical
recovery in steel production which, coupled with our global network of
manufacturing facilities strategically located in key markets, we expect to
enhance our cash flow and earnings per share. We believe that the recently
announced shutdown of our highest cost graphite electrode manufacturing
operations, located in Clarksville and Columbia, Tennessee, will further enhance
our position as a low-cost supplier.
We believe that the barriers to new entrants in the graphite and carbon
electrode industries are high. There have been no significant new entrants since
1950. We believe that our average capital investment to increase our annual
graphite electrode manufacturing capacity by about 15% would be about $500 per
metric ton, which we estimate is less than 20% of the initial investment for
"greenfield" capacity.
BUSINESS STRATEGIES
The strategic goal of this division is to generate strong cash flow by
pursuing the following strategies:
BEING THE LOW COST SUPPLIER. We have aggressively reduced our costs of
production. We have closed higher cost facilities and migrated that capacity to
lower cost facilities, reducing our cost of sales per metric ton of graphite
electrodes by about 13% since the end of 1998. We are continuing our efforts to
aggressively reduce costs and recently announced our intention to shut down our
graphite electrode manufacturing operations in Clarksville and Columbia,
Tennessee, our highest cost graphite electrode manufacturing operations. The
establishment of our joint venture in China with Jilin, subject to required
Chinese governmental approvals, will provide us with access to low cost
manufacturing capacity for high quality graphite electrodes in Asia for the
first time. We have evaluated every aspect of our supply chain performance and
taken concrete steps to significantly improve it by de-bottlenecking key
production processes at our facilities, implementing J.D. Edwards NuMetrics
production planning software and adopting lean manufacturing techniques, all of
which resulted in a 15% reduction in the average time required to produce a
graphite electrode in 2000 as compared to 1999. We believe that this division's
cost structure is currently among the lowest of all major producers of graphite
electrodes.
DELIVERING EXCEPTIONAL AND CONSISTENT QUALITY. We believe that we operate
the world's premier electrode and cathode research and development laboratories
and that our products are among the highest quality available. We have worked
diligently in recent years to improve the consistent quality and uniformity of
our products on a worldwide basis, providing the flexibility to source most
orders from the facility that best satisfies customer needs and increases
profitability. We believe that the consistently high quality of our products
enables customers to achieve significant production efficiencies, which we
believe provides us with an important competitive advantage.
PROVIDING SUPERIOR TECHNICAL SERVICE. We believe that we are the recognized
industry leader in providing value added technical services to customers in the
industries we serve. We employ about 30 engineers who provide technical service
to customers globally in all areas of electric arc and aluminum smelting furnace
specification, design and operation. We believe that we have more technical
service engineers, located in more countries, than any of our competitors. We
believe that our superior service provides us with another important competitive
advantage. In addition to providing operating and processing technical services,
we are frequently called upon to provide advisory services to companies that are
commissioning a new electric arc or aluminum smelting furnace. We believe that
the attractiveness of the services we can provide while a furnace is being
commissioned frequently results in our obtaining the manufacturer as a customer
for our products.
CAPITALIZING ON OUR GLOBAL PRESENCE AND EXECUTING OUR ASIAN GROWTH
STRATEGY. We believe that this division has the number one market share in all
of its major product lines. We believe that, in 2000, its global market share
was:
- about 21% in graphite electrodes,
50
- about 27% in carbon electrodes, and
- about 20% in graphite and carbon cathodes.
In addition, we are one of only two global producers of graphite and carbon
electrodes and cathodes. This division sells its products in every major
geographic market. Sales of the division's products outside the U.S. accounted
for about 78% of its net sales in 2000. No single customer or group of
affiliated customers accounted for more than 4% of our net sales in 2000. We
believe that our network of state-of-the-art manufacturing facilities in diverse
geographic regions, including Brazil, France, Italy, Mexico, Russia, South
Africa and Spain, coupled with our new joint venture manufacturing facility
located in China, which, subject to required Chinese governmental approvals, is
expected to commence operations in 2002, provides us with significant
operational flexibility and a significant competitive advantage. In addition, as
the steel industry continues to consolidate, with the largest steel producers
now operating in multiple countries, we believe that we are the producer of
graphite electrodes best positioned to serve their global purchasing
requirements.
In April 2001, we entered into a joint venture with Jilin to produce and
sell high-quality graphite electrodes in China, which we believe to be the
largest market for graphite electrodes in the world. This joint venture is
expected to provide us with access to graphite electrode manufacturing
capability in Asia for the first time. To date, we believe that our share of the
Asian market for graphite electrodes has been only about 4% as compared to our
worldwide market share of about 30% (excluding the Asian market). We believe
that this low cost facility will provide us with an excellent platform to expand
our market share, both in China and in the rest of Asia.
STRATEGIC ALLIANCES
We are pursuing strategic alliances that enhance or complement our existing
or related businesses and have the potential to generate strong cash flow.
Strategic alliances may be in the form of joint venture, licensing, supply or
other arrangements that leverage our strengths to achieve cost savings, improve
margins and cash flow, and increase net sales and earnings growth.
We have developed a strategic alliance with Pechiney in the cathode
business, which includes our relationship with Pechiney as a significant
customer under a long term supply contract. Our joint venture with Pechiney has
allied us with the recognized leader in aluminum smelting technology worldwide.
To broaden our alliance, in March 2001, we contributed our Brazilian cathode
manufacturing operations with a book value of $3 million to Carbone Savoie.
Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately
$9 million in cash to Carbone Savoie as part of this transaction. Prior to these
contributions, all of Carbone Savoie's manufacturing operations were located in
France. The cash contribution will be used to upgrade manufacturing operations
in Brazil and France, which is expected to be completed in early 2002. Ownership
in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened
alliance, Carbone Savoie holds our entire cathode manufacturing capacity, which
is about 40,000 metric tons of cathodes annually. With these upgrades, we
believe that we will be positioned as the quality leader in the low cost
production of graphite cathodes, the preferred technology for deployment in new
aluminum smelting furnaces due to its ability to provide substantial
improvements in process efficiency.
We are using Pechiney's smelting technology and our graphite technology and
expertise in high temperature industrial applications to develop further
improvements in graphite cathodes. Our graphite cathodes are used by Pechiney in
its own plants and marketed to its licensees as well as to third parties.
In April 2001, we entered into a joint venture agreement with Jilin to
produce and sell high-quality graphite electrodes in China, which we believe to
be the largest market for graphite electrodes in the world. Jilin is the largest
producer of graphite electrodes and other graphite specialtyand carbon products is petroleum coke, which is
an engineered by-productin China.
It currently produces about 50,000 metric tons of the petroleum industry.graphite electrodes annually.
51
Over the past several decades, the Companyleading electric arc furnace steelmakers
have upgraded, and most other steelmakers (including those in China) are
upgrading, their furnaces to more modern and efficient ones. These furnaces
require larger and higher quality graphite electrodes, typically in diameters of
22 inches and above. Jilin currently makes 22 inch and 24 inch graphite
electrodes as well as smaller sizes. Under the joint venture agreement, Jilin
has agreed that the joint venture facilities will be its exclusive facilities
for manufacturing 22 inch and larger graphite electrodes. As a result, Jilin
will be replacing a portion of its existing production with production by the
joint venture.
The joint venture is expected to:
- have capacity to manufacture about 20,000 metric tons of graphite
electrodes annually,
- be configured so as to be expandable to about 30,000 metric tons,
- utilize renovated capacity at Jilin's main facility in Jilin City, and
- complete additions at another site in Changchun that were begun by Jilin.
The first phase of renovations is expected to be completed by 2002. We will
provide $6 million of cash and technical assistance for a 25% ownership interest
in the joint venture. The completion of the parties' capital contributions to
the joint venture is subject to the receipt of required Chinese governmental and
corporate confirmations and approvals.
MARKETS AND INDUSTRY OVERVIEW
We estimate that, in 2000, the worldwide market for graphite and carbon
electrodes and cathodes was about $3 billion. These products are sold primarily
to customers in the steel, silicon metal, ferronickel, thermal phosphorous,
titanium dioxide, aluminum and other metals industries. Customers in these
industries are located in all major geographic markets.
USE OF GRAPHITE ELECTRODES IN ELECTRIC ARC FURNACES. There are two primary
technologies for steel making:
- basic oxygen furnace steel production, and
- electric arc furnace steel production.
Electric arc furnace steel makers are called "market mills" or "mini-mills"
because of their historically smaller capacity as compared to basic oxygen
furnace steel makers and because they historically served more localized
markets. Graphite electrodes are used primarily in electric arc furnace steel
production. They are also used to refine steel in ladle furnaces and in other
smelting processes such as production of titanium dioxide.
Electrodes act as conductors of electricity into the furnace, generating
sufficient heat to melt scrap metal, iron ore or other raw materials used to
produce steel, silicon metal or other metals. The electrodes are gradually
consumed in the course of that production. Graphite electrodes are used
primarily in the production of steel in an electric arc furnace. These electric
arc furnaces typically range in size from those that produce about 25 metric
tons of steel per production cycle to those that produce about 150 metric tons
per production cycle. Electric arc furnaces operate using either alternating or
direct electric current. The vast majority of electric arc furnaces use
alternating current. Each of these furnaces typically uses nine electrodes (in
three columns of three electrodes each) at one time. The other electric arc
furnaces, which use direct current, typically use one column of three
electrodes. The size of the electrodes varies depending on the size of the
furnace, the size of the furnace's electric transformer and the planned
productivity of the furnace. In a typical furnace using alternating current and
operating at a typical number of production cycles per day, one of the nine
electrodes is fully consumed (requiring the addition of a new electrode), on
average, every eight to ten operating hours. The actual rate of consumption and
addition of electrodes for a particular furnace depends primarily on the
efficiency and productivity of the furnace. Therefore, demand for graphite
electrodes is directly related to the amount and efficiency of electric arc
furnace steel production.
52
Electric arc furnace steel production requires significant heat (as high as
5,000 degrees Fahrenheit, which we believe is the hottest operating temperature
in any industrial or commercial manufacturing process worldwide) to melt scrap
metal, iron ore or other raw materials. Heat is generated as electricity (as
much as 150,000 amps) passes through the electrodes and creates an electric arc
between the electrodes and the raw materials.
Graphite electrodes are currently the only products available that have the
high levels of electrical conductivity and the capability of sustaining the high
levels of heat generated in an electric arc furnace producing steel. Therefore,
graphite electrodes are essential for electric arc furnace steel production. We
estimate that, on average, the cost of graphite electrodes represents about 3%
of the cost of producing steel in a typical electric arc furnace.
Electric arc furnace steel production has, for many years, been the higher
growth sector of the steel industry. There are currently in excess of 2,000
electric arc furnaces operating worldwide. Worldwide electric arc furnace steel
production grew from about 90 million metric tons (about 14% of total steel
production) in 1970 to about 285 million metric tons (about 34% of total steel
production) in 2000. We estimate that steel makers worldwide added net new
electric arc furnace steel production capacity of about 19 million metric tons
in 1998, about 18 million metric tons in 1999 and about 13 million metric tons
in 2000.
RELATIONSHIP BETWEEN GRAPHITE ELECTRODE DEMAND AND ELECTRIC ARC FURNACE
STEEL PRODUCTION. We believe that the worldwide growth in electric arc furnace
steel production has been due primarily to improvements in the cost
effectiveness and operating efficiency of electric arc furnace steel making. We
believe that growth has also been due to the fact that, as a result of recent
technical advances, electric arc furnace steel makers are capable of producing
the majority of the product lines available from basic oxygen furnace steel
makers.
This improved efficiency resulted in a decrease in specific consumption. We
estimate that specific consumption declined, at decreasing rates of decline,
from about 6.4 kilograms of graphite electrodes per metric ton of steel produced
in 1974 to about 2.5 kilograms per metric ton in 2000. We believe that, on
average, as the costs (relative to the benefits) increase for electric arc
furnace steel makers to achieve significant further efficiencies in electric arc
furnace graphite electrode consumption, the decline in specific consumption will
continue at a more gradual pace. We further believe that the rate of decline in
the future will be impacted by the addition of new electric arc furnace steel
making capacity. To the extent that this new capacity replaces old capacity, it
has the effect of reducing industry wide specific consumption due to the
efficiency of new electric arc furnaces. To the extent this new capacity
increases industry wide electric arc furnace steel production capacity and that
capacity is utilized, it creates additional demand for graphite electrodes.
PRODUCTION CAPACITY AND PRICING. Currently, there is one other global
manufacturer and about ten other notable regional or local manufacturers of
graphite electrodes. There have been no significant entrants in the manufacture
of graphite electrodes since 1950. We believe that it is unlikely that new
"greenfield" graphite electrode manufacturing facilities will be built during
the next several years or that there will be significant new entrants in the
manufacture of these products during the next several years due to, among other
things, the relatively high cost of building a new facility and the need for
extensive manufacturing process know-how.
Beginning in late 1997 and continuing into the 1999 first quarter, global
and regional economic conditions adversely impacted electric arc furnace steel
production. Beginning in the 1999 second quarter, electric arc furnace steel
production began to increase due to a gradual recovery in global and regional
economic conditions, peaking in the 2000 second quarter. In the 2000 second
half, electric arc furnace steel production weakened in North America. These
fluctuations in electric arc furnace steel production resulted in corresponding
fluctuations in demand for graphite electrodes. Other than in China for which
reliable information is not generally available, we believe that the graphite
electrode manufacturing capacity utilization rate was about 85% in 1998, 86% in
1999 and about 93% in 2000.
53
As part of our global restructuring and rationalization plan initially
announced in September 1998, we reduced our annual graphite electrode
manufacturing capacity by about 30,000 metric tons. In 2000, we re-sourced 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 the aluminum industry, we re-sourced 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
transferred the majority of 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 is
now being used to produce graphite cathodes and graphite specialties. As a
result of these actions, our annual graphite electrode manufacturing capacity
was permanently reduced by about another 15,000 metric tons. As a result, our
capacity was reduced to about 230,000 metric tons in 2000 from about 275,000
metric tons in 1998.
In May 2001, we announced that we intend to shut down our graphite electrode
manufacturing operations in our Clarksville and Columbia, Tennessee facilities
for an undetermined period of time. Graphite machining operations in Clarksville
will continue using product from our other facilities. The shutdown is part of
our strategy of reducing costs and optimizing global production capacity, and
reflects current graphite electrode market conditions. These operations were our
highest cost graphite electrode manufacturing operations. These operations have
capacity to produce about 40,000 tons of graphite electrodes annually. We expect
to incrementally expand graphite electrode manufacturing capacity at our
facilities in Mexico and Europe for an expected capital investment of about
$3 million. After the shutdown and expansion, our total graphite electrode
manufacturing capacity will be reduced from 230,000 metric tons to 210,000
metric tons.
We are not aware of any construction of new graphite electrode manufacturing
facilities, excluding incremental expansion of existing capacity. Since
September 1998, two of our competitors have reduced their annual graphite
electrode manufacturing capacity. Their announced reductions total more than
35,000 metric tons.
We believe that together the capacity reductions by us and our competitors
described above represented about 9% of estimated worldwide graphite electrode
manufacturing capacity in 1998.
OUR GRAPHITE ELECTRODE MARKET SHARE. We estimate that about 67% of the
electric arc furnace steel makers (other than in Russia and China, for which
reliable information is not generally available) and about 85% of the electric
arc furnace steel makers in markets where we have manufacturing facilities,
purchased all or a portion of their graphite electrodes from us in 2000. We
further estimate that we supplied about 40% of all graphite electrodes purchased
in markets where we have manufacturing facilities and about 21% worldwide, in
each case in 2000. Sales of graphite electrodes in markets where we have
manufacturing facilities accounted for about 78% of our net sales of graphite
electrodes in 2000. We estimate that the global market for graphite electrodes
was about $2.5 billion in 2000.
We estimate that, in 2000, sales in the U.S. accounted for about 21% of our
total net sales of graphite electrodes and that we sold graphite electrodes in
over 80 countries, with no other country accounting for more than 10% of our
total net sales of graphite electrodes.
OUTLOOK FOR GRAPHITE ELECTRODES. Throughout 1998 and the 1999 first
quarter, electric arc furnace steel production declined as a result of adverse
global and regional economic conditions. A recovery began in the 1999 second
quarter that lasted through mid-2000. Beginning in mid-2000, electric arc
furnace steel production began to weaken in North America. The weakening became
more severe in the 2000 fourth quarter and is expected to continue at least
through the end of 2001, and may impact other regional economies.
Notwithstanding that weakening, in 2000 estimated worldwide electric arc furnace
steel production was a record 285 million metric tons (about 34% of total steel
production). These fluctuations in electric arc furnace steel production
resulted in corresponding fluctuations in demand for graphite electrodes.
Overall pricing, however, weakened throughout most of this period. We believe
that graphite electrode industry fundamentals support our strategy and a
recovery in pricing
54
over the long-term. During 1998 through 2000, we estimate that an aggregate of
about 50 million metric tons of net new electric arc furnace steel making
capacity was added worldwide. We estimate that about 13 million metric tons of
that net new capacity was added in 2000. 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 36 million metric tons of announced net new
electric arc furnace production capacity that is scheduled to be added in 2001
through 2003.
We estimate worldwide graphite electrode demand increased by about 4% in
2000 as compared to 1999. Our volume of graphite electrodes sold increased by 5%
in 2000 as compared to 1999. We implemented, and are continuing to implement,
increases in local currency selling prices of our graphite electrodes announced
in 2000 in Europe, the Asia Pacific region, the Middle East and South Africa. In
April 2001, we implemented an additional 8% local currency selling price
increase in Europe.
In light of, among other things, the weakening of electric arc furnace steel
production in North America, we believe that worldwide electric arc furnace
steel production will decline in 2001 as compared to 2000. We expect that demand
for our graphite electrodes will decline in 2001 as compared to 2000 due to the
decline in electric arc furnace steel production and our efforts to implement
local currency selling price increases.
CARBON ELECTRODES. Carbon electrodes are used primarily to produce silicon
metal, which is used in the manufacture of aluminum. Carbon electrodes are also
used in the production of ferro nickel and thermal phosphorous. Carbon
electrodes are used and consumed in a manner similar to that of graphite
electrodes, although at lower temperatures and with different consumption rates.
We estimate that demand for carbon electrodes was about 83,000 metric tons in
1998, about 82,000 metric tons in 1999 and about 86,000 metric tons in 2000. We
believe that the increase in 2000 was due primarily to increased demand in
Brazil and Europe as a result of the 1999 second quarter through mid-2000
recovery in global and regional economic conditions.
We estimate that we sold about 28% of the carbon electrodes purchased in
2000. We estimate that the worldwide market for carbon electrodes was about
$120 million in 2000. We are the only manufacturer of carbon electrodes in North
America.
CATHODES. Cathodes consist primarily of blocks used as lining for, and
conductors of electricity in, furnaces (called "POTS") used to smelt aluminum.
In a typical smelting furnace operating at a typical rate and efficiency of
production, the cathodes must be replaced every 5 to 8 years. As a result of our
acquisition of 70% of Carbone Savoie, we are the largest manufacturer of
cathodes and are allied with Pechiney, which is one of the world's leading
producers of aluminum and the leading supplier of smelting technology to the
aluminum industry. We are using Pechiney's technology and our graphite
technology and expertise in high temperature industrial applications to develop
further improvements in graphite cathodes. We believe that use of graphite
cathodes (instead of carbon cathodes) allows a substantial improvement in
process efficiency. There are five producers of cathodes in the world.
We estimate that we sold about 30% of the carbon and graphite cathodes sold
in 2000 (excluding those sold in Russia and China). We estimate that the
worldwide market for graphite and carbon cathodes was about $230 million in
2000. We believe that worldwide demand for aluminum will continue to grow over
the long term at an average annual trend line rate of 2% to 3%, primarily
because of greater use of aluminum by the transportation industry. We also
believe that the aluminum industry is operating at nearly full capacity and, as
a result, that new aluminum smelting furnaces will need to be built to meet the
growth in demand. We believe, therefore, that demand for graphite cathodes will
continue to grow, both for new smelting furnaces as well as for substitution for
carbon cathodes in existing smelting furnaces.
MANUFACTURING PROCESSES
The manufacture of a graphite electrode takes, on average, about two months.
Graphite electrodes range in size from three inches to 30 inches in diameter and
two feet to nine feet in length and weigh between 20 pounds and 4,800 pounds
(2.2 metric tons).
55
The manufacture of graphite electrodes involves the six main processes
described below.
FORMING: Calcined petroleum coke is crushed, screened, sized and
blended in a heated vessel with coal tar pitch. The
resulting plastic mass is extruded through a forming press
and cut into cylindrical lengths (called "green" electrodes)
before cooling in a water bath.
BAKING: The "green" electrodes are baked at about 1,400 degrees
Fahrenheit in specially designed furnaces to purify and
solidify the pitch and burn off impurities. After cooling,
the electrodes are cleaned, inspected and sample-tested.
IMPREGNATION: Baked electrodes are impregnated with a special pitch when
higher density, mechanical strength and capability to
withstand higher electric currents are required.
REBAKING: The impregnated electrodes are rebaked to solidify the
special pitch and burn off impurities, thereby adding
strength to the electrodes.
GRAPHITIZING: Using a process that we developed, the rebaked electrodes
are heated in longitudinal electric resistance furnaces at
about 5,000 degrees Fahrenheit to restructure the carbon to
its characteristically crystalline form, graphite. After
this process, the electrodes are gradually cooled, cleaned,
inspected and sample-tested.
MACHINING: After graphitizing, the electrodes are machined to comply
with international specifications governing outside
diameters, overall lengths and joint details. Tapered
sockets are machine-threaded at each end of the electrode to
permit the joining of electrodes in columns by means of
correspondingly double-tapered machine-threaded graphite
nipples.
We believe that we provide the broadest range of sizes in graphite
electrodes and that the quality of our graphite electrodes is competitive with
or better than that of comparable products of any other major manufacturer. We
also believe that there are currently no commercially viable substitutes for
graphite electrodes in electric arc furnace steel making.
Carbon electrodes (which can be up to 55 inches in diameter) and graphite
and carbon cathodes are manufactured by a comparable process (excluding, in the
case of carbon electrodes and cathodes, impregnation and graphitization).
We generally warrant to our customers that our electrodes and cathodes will
meet our specifications. Electrode and cathode returns and replacements have
aggregated less than 1% of net sales in each of the last three years.
We have the capacity to manufacture about 230,000 metric tons of graphite
electrodes annually (210,000 metric tons, after shutdown of graphite electrode
manufacturing operations in our Clarksville and Columbia, Tennessee facilities
and incremental expansion of capacity at our facilities in Mexico and Europe).
We have the capacity to manufacture about 30,000 metric tons of carbon
electrodes annually and about 40,000 metric tons of cathodes annually. The
following table sets forth certain information regarding our sales volumes:
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999 2000
-------- ---------- --------
(METRIC TONS)
Volume of graphite electrodes sold............ 211,000 206,000 217,000
Volume of carbon electrodes sold.............. 25,000 22,000 23,000
Volume of cathodes sold....................... 33,000 31,000 35,000
56
We operate 15 manufacturing facilities located in Brazil, France, Italy,
Mexico, Russia, South Africa, Spain, and the U.S. and, upon commencement of its
operations (which, subject to required Chinese governmental approvals, is
expected to occur in 2002), will be a partner in a joint venture manufacturing
facility located in China. Graphite electrodes are manufactured in each of those
countries. Carbon electrodes are manufactured in the U.S. Cathodes are
manufactured in France and Brazil.
We believe that our multiple fully integrated state-of-the-art electrode and
cathode manufacturing facilities in diverse geographic regions provide us with
significant operational flexibility. We use robotics and statistical process
controls in manufacturing processes and have a total quality control program
that involves significant in-house training. We utilize sophisticated "pipeline"
manufacturing and logistical systems at most of our electrode and cathode
manufacturing facilities. These controls, programs and systems have improved
product quality, reduced waste in the manufacturing process, resulted in more
efficient utilization of manufacturing personnel and equipment, improved
efficiency in customer order processing and reduced inventory requirements. We
have installed at some of these facilities and intend to install at our other
graphite electrode and cathode manufacturing facilities proprietary process
technology to further reduce manufacturing cycle times, increase cost efficiency
and improve coordination between production scheduling and forecast sales.
Through our restructuring and re-engineering projects and plans, we have
sought to modularize our graphite electrode and graphite and carbon cathode
manufacturing capacity. This enables us to seek to incrementally adjust capacity
in use, as well as related costs, to accommodate anticipated changes in sales
volume. We have developed, among other things, advanced planning capabilities
for our global electrode and cathode manufacturing capacity that allows us to
seek to optimize, under then current conditions, changes in variables affecting
profitability, including variable production costs, changes in currency exchange
rates, changes in product mix and plant capacity utilization. In addition,
generally we seek to manage our manufacturing operations on a global basis,
allocating production among our worldwide manufacturing facilities to minimize
the number of products made at each facility and to maximize capacity
utilization at as many of our facilities as possible. This enables us to, among
other things, seek to minimize our fixed costs per metric ton produced. We also
believe that our global manufacturing base helps us to minimize risks associated
with dependence on any single economic region.
We believe that we have adequate existing permanent graphite and carbon
electrode and cathode manufacturing capacity to meet any increased demand over
the near term. We believe that our average capital investment to increase our
annual graphite electrode manufacturing capacity by about 15% would be about
$500 per metric ton, which we estimate is less than 20% of the initial
investment for "greenfield" capacity.
Major maintenance at our facilities is conducted on an ongoing basis.
Manufacturing operations at any facility may be subject to curtailment due to
new laws or regulations, changes in interpretations of existing laws or
regulations or changes in governmental enforcement policies.
SALES AND CUSTOMER SERVICE
This division sells products in every major geographic market through its
direct sales force, whose members are trained and experienced with our products.
Our direct sales force operates from more than 20 sales offices located in the
U.S., Europe and other markets. We also sell products through independent sales
agents and distributors.
We have a strong commitment to provide a high level of technical service to
customers and this division has customer technical service personnel in the
U.S., Europe and other markets. This division assists its customers to maximize
their production and minimize their costs and employs about 30 engineers to
provide technical service to customers globally in, among other things, all
areas of electric arc furnace design and operation, electrode specification and
use and related matters. This technical service includes periodically monitoring
certain customers' electric arc furnace efficiency levels. We believe that this
division has more technical service engineers located in more countries than any
of its competitors.
57
This division's sales and service groups include those dedicated to cathodes
who are employed by Carbone Savoie. Carbone Savoie's sales and service groups
work closely with those of Pechiney to maximize use of their respective products
and technologies.
RAW MATERIALS AND SUPPLIERS
The primary raw materials for electrodes and cathodes are engineered
by-products and residues of the petroleum and coal industries. We use these raw
materials because of their high carbon content. The primary raw materials for
graphite electrodes and graphite cathodes are calcined petroleum cokes (needle
coke for electrodes and regular grade cokes for cathodes), coal tar pitch and
petroleum pitch. The primary raw materials for carbon electrodes and carbon
cathodes are calcined anthracite coal and coal tar pitch and, in some instances,
a petroleum coke-based material.
Typically, this division purchases raw materials from a variety of sources,
typically under short term contracts or on the spot market, in each case at
fluctuating prices. We believe that adequate supplies of these raw materials are
available at market prices. The division purchases the majority of its petroleum
coke from multiple plants of a single major petroleum company and, since 1988, has done soConoco pursuant to annual purchase contracts. The Company believesan understanding as to a long term supply
arrangement. This arrangement encompasses supply chain optimization activities,
including development of new grades of petroleum coke. We believe that the
quality and cost of this division's raw materials on the whole is competitive
with or better than those available to its major competitors and that, under
current conditions, itsthis division's raw materials are available in adequate
quantities at market
prices.quantities. Since electrodes and cathodes use the same primary raw materials, we
believe that this division is able to purchase these raw materials on a more
cost efficient basis than some of its competitors with more limited product
lines and production volumes. Electric power or natural gas used in
manufacturing processes is purchased from local suppliers under short-term
contracts or in the spot market.
The availability and price of raw materials and energy may be subject to
curtailment or change due to limitations which may be imposed under new
legislation or governmental regulations, suppliers' allocations to meet demand
of other purchasers during periods of shortage (or, in the case of energy
suppliers, extended cold weather), interruptions in production by suppliers and
market and other events and conditions. Petroleum products, including petroleum
coke, have been subjectPrior to significant price fluctuations and, recently, market
prices of petroleum coke have increased for the Company and its competitors.
Over the past several years, the Company hasmid-2000, we mitigated the
effect of suchraw material and energy price increases on itsour results of operations
through a combination of improved operating efficiency and permanent on-going
cost savingssavings. Beginning in mid-2000, we began to experience higher energy and
passing such price
increases onraw material costs primarily due to customers. However, there can be no assurance that such measures
will successfully mitigate future increasesthe substantial increase in theworldwide market
price of petroleum coke or
other raw materials or energy.oil and natural gas. These increases have adversely impacted our costs.
A substantial increase in raw material or energy prices, which cannot be
mitigated or passed on to customers, or a continued interruption in supply,
particularly in the supply of petroleum coke or energy, would have a material
adverse effect on us.
RESEARCH AND DEVELOPMENT
We have two dedicated technology centers, one in Parma, Ohio, which is used
by both of our divisions, and the Company's resultsother in France, which is used by Carbone
Savoie. Past developments by us include larger and stronger electrodes, new
chemical additives to enhance raw materials used in the manufacture of operations.
COMPETITIONgraphite
electrodes and environmentally benign cold pastes used with cathodes. We have
received recognition for the high quality of our products under several programs
around the world and have been awarded preferred or certified supplier status by
many major steel and other manufacturing companies.
Two areas of current focus by this division are further quality improvements
in supersize graphite electrodes and in graphite cathodes. Supersize electrodes
are used in the modern high-powered, larger electric arc furnaces that
constitute the majority of newly built furnaces. Graphite cathodes can be used
instead of carbon cathodes in smelting aluminum. Use of graphite cathodes allows
for substantial improvements in process efficiency. We believe that the market
for supersize graphite electrodes and graphite cathodes represent growth sectors
of the graphite electrode and cathode businesses. There are about five other
manufacturers of supersize graphite electrodes and two other manufacturers of
graphite cathodes in the world.
58
DISTRIBUTION
Our graphite electrode customers generally seek to negotiate prices and
anticipated volumes on an annual basis. Our customers then generally place
orders for graphite electrodes three to six months prior to the specified
delivery date. Such orders are cancelable by the customer. Therefore, we
manufacture graphite electrodes and seek to manage graphite electrode inventory
levels to meet rolling sales forecasts. We generally seek to maintain an
appropriately low level of finished graphite electrode inventories, taking into
account these factors and the length of graphite electrode manufacturing cycles.
Other electrode and cathode products are generally manufactured or fabricated to
meet customer orders. Accordingly, inventory levels will vary with demand for
these finished products. Recently, we have entered into long term supply
contracts with purchasers of our carbon electrodes. We may, from time to time in
the future, enter into long term supply contracts with purchasers of our other
products.
Finished products are generally stored at our manufacturing facilities. We
ship our finished products to customers primarily by truck and ship, using "just
in time" techniques where practical.
Proximity of manufacturing facilities to customers can provide a competitive
advantage in terms of cost of delivery of electrodes and cathodes. The
significance of these costs is affected by fluctuations in exchange rates,
methods of shipment, import duties and whether the manufacturing facilities are
located in the same economic trading region as the customer. We believe that we
are generally better positioned in terms of such proximity than our major
competitors to supply graphite electrodes and graphite and carbon cathodes.
INTELLECTUAL PROPERTY
We own or have obtained licenses to various domestic and foreign patents,
patent applications and trademarks related to the products, industryprocesses and
business of this division. These patents expire at various times over the next
18 years. These patents and patent applications in the aggregate are important
to our competitive position and growth opportunities.
The tradename and trademark UCAR are owned by Union Carbide and licensed to
us on a royalty-free basis under a license expiring in 2015. This license
automatically renews for successive ten-year periods. It permits non-renewal by
Union Carbide commencing after the first ten-year renewal period upon five
years' notice of non-renewal. The tradename and trademark CARBONE SAVOIE are
owned by Carbone Savoie and used in connection with cathodes manufactured by it.
It is highly competitive.a registered trademark in Europe.
This division has know-how and proprietary information that is important to
its competitive position and growth opportunities. We seek to protect our
know-how and proprietary information, as we believe appropriate, through written
confidentiality and restricted use agreements with employees, consultants and
others and various operating and other procedures.
We cannot assure you that protection for our intellectual property under our
patents and our measures to protect know-how and proprietary information will be
effective or that our use of intellectual property does not infringe the rights
of others.
COMPETITION
Competition in the graphite and carbon electrode and cathode business is
based primarily on price, product quality and customer service.
There is one other global manufacturer and about ten other notable regional
or local manufacturers of graphite electrodes. We believe that we are the
largest manufacturer in the world and SGL Carbon AG (whose plants are located in
North America and Europe) is the second largest. Other manufacturers of graphite
electrodes include: The Carbide/Graphite electrodes,Group, Inc. (whose plants are located
in particular,the U.S.) and four manufacturers in Japan (one of whom, Showa Denko
Carbon, Inc., has a plant located in the U.S.).
The antitrust investigations, lawsuits and claims are having an impact on
the graphite electrode industry. We believe that, at a minimum, these impacts
include increased price competition and increased debt or cost burdens, or both,
for most manufacturers in the industry. In December 1998, the U.S. subsidiary of
SGL Carbon AG commenced a proceeding for reorganization under Chapter 11 of
59
the U.S. Bankruptcy Code. This proceeding was dismissed in March 2000 on the
grounds that it was not commenced in good faith. It is possible that other
competitors could commence similar proceedings. It is also possible that, as a
result of these proceedings or increased debt or costs, one or more of our
competitors could divest graphite electrode manufacturing facilities or become
subject to rigorous price competition.
Althoughsimilar proceedings. This could increase the Company has periodically increased prices overnumber or change the
past several
years, there can be no assurance that the Company will be ablecapabilities of our competitors. It is not uncommon for companies subject to
increase
prices in the future.such proceedings to enjoy, at least temporarily, a cost advantage as compared to
their competitors. This advantage may enable them to compete more aggressively
on price.
In addition further price increasesto the external circumstances described above, our competitive
position could be impacted by the Company or
price reductions by competitors,internal circumstances. These include decisions by
the Companyus with respect to increasing prices or maintaining profit margins rather than
market share or with respect to other competitive or market factors or strategiesstrategies.
All of the circumstances described above could adversely affect the Company'sour market
share or results of operations. CompetitionThey could prevent institution ofalso affect our ability to institute
price increases or could require price reductionscompel us to reduce prices or increasedincrease spending on research
and development or marketing and sales, all of which could adversely affect us.
There are two significant manufacturers of carbon electrodes in the Company'sworld.
We believe that we are the largest and SGL Carbon AG is the second largest.
There are six manufacturers of cathodes in the world. We believe that we are
the largest and SGL Carbon AG is the second largest.
The manufacture of high quality graphite and carbon products is a mature,
capital intensive business that requires extensive process know-how regarding
working with various raw materials and with raw material suppliers, furnace
manufacturers and steel, aluminum or other metal producers or other end users
(including working on the specific applications for finished products). It also
requires high quality raw material sources and a developed energy supply
infrastructure. There have been no significant new entrants in the manufacture
of graphite electrodes since 1950. We believe that it is unlikely that new
"greenfield" graphite electrode manufacturing facilities will be built during
the next several years due to, among other things, the relatively high cost of
building a new facility.
60
ADVANCED ENERGY TECHNOLOGY DIVISION
INTRODUCTION
Our Advanced Energy Technology Division was established to develop high
quality, highly engineered natural and synthetic graphite- and carbon-based
energy technologies, products and services for high growth markets. We believe
that we will be successful because of our portfolio of proprietary technology
related to graphite and carbon materials science and our processing and
manufacturing technology. We currently sell natural and synthetic graphite- and
carbon-based products to the transportation, semiconductor, aerospace, fuel cell
power generation, electronics and other markets. Due to the growth potential for
fuel cell power generation, electronic thermal management and other identified
markets, we are investing substantial resources in developing proprietary
technologies and products for these markets. In addition, we are providing
cost-effective technical services for a broad range of markets and licensing our
proprietary technology in markets where we do not anticipate engaging in
manufacturing ourselves. This division currently holds about 140 of our issued
patents and about 250 of our pending patent applications and perfected patent
application priority rights worldwide. In 2000, net sales of this division were
$125 million, with gross profit of $32 million.
For the fuel cell power generation market, we are developing materials and
components for PEM fuel cells and fuel cell systems, including flow field plates
and gas diffusion layers. For the electronic thermal management market, we are
developing and selling thermal interface products and designs and developing and
introducing prototype heat spreaders, heat sinks and heat pipes for computer,
communications, industrial, military, office equipment and automotive electronic
applications. Other identified markets include fire retardant products for
transportation applications and building and construction materials
applications, industrial thermal management products for high temperature
process applications and conductive products for batteries and supercapacitor
power storage applications.
Natural graphite-based products, including flexible graphite, are developed
and manufactured by our subsidiary, Graftech. Our synthetic graphite- and
carbon-based products are developed and manufactured by our Advanced Graphite
and Carbon Materials business unit, which includes our former graphite and
carbon specialties businesses. Our technology, licensing and technical services
are marketed and sold by our High Tech High Temp business unit.
BUSINESS STRATEGIES
The strategic goal of this division is to create and deliver stockholder
value through commercialization of proprietary technologies into high growth
markets. We seek to identify technologies where its products and services offer
advantages in performance and/or cost as compared to competitive technologies,
materials, products or services. To achieve this goal, we intend to leverage its
strengths at:
- developing and protecting intellectual property,
- developing and commercializing prototype and next generation products and
services,
- establishing strategic alliances with customers, suppliers and other third
parties, and
- setting and achieving those milestones which are critical to the
successful, timely commercialization of our technologies.
DEVELOPING AND PROTECTING INTELLECTUAL PROPERTY. We believe that our
proprietary technology, experience, "know-how" and other intellectual property
give us a competitive advantage in the development of graphite-based products.
We conduct, at our technology center located in Parma, Ohio, the five
manufacturing facilities engaged in the business of this division, and at the
facilities of our strategic partners, a focused technology development program
to enable us to provide new technologies, products and services, expand and
develop existing products and services and develop cost effective manufacturing
processes. We believe that our Parma facility is the premier facility for the
development of graphite and carbon products and technologies. We also operate a
state-of-the-art testing facility capable of conducting physical and analytical
testing to develop natural and synthetic graphite and carbon products and
process technology.
61
The development and protection of our intellectual property is an integral
part of our corporate philosophy. Our policy is to aggressively seek worldwide
patent coverage for technical innovations developed by us. This policy helps
ensure that we prevent our competitors from making use of our proprietary
technology. This division currently holds about 140 of our issued patents and
about 250 of our patent applications and perfected patent application priority
rights. These patent rights include patents and pending patent applications
relating to:
- materials and components for PEM fuel cells and fuel cell systems,
- electronic thermal management products, including thermal interface
products and designs, heat spreaders, heat sinks and heat pipes, for
computers, communications, industrial, military, office equipment and
automotive electronic applications,
- fire retardant products for transportation applications and building and
construction materials applications,
- industrial thermal management products for high temperature process
applications, and
- conductive products for batteries and supercapacitor power storage
applications.
We seek to protect our know-how and proprietary information, as we believe
appropriate, through written confidentiality and restricted use agreements with
employees, consultants and others and through various operating and other
procedures.
DEVELOPING AND COMMERCIALIZING PROTOTYPE AND NEXT GENERATION PRODUCTS AND
SERVICES. This division is currently focusing its technological development
efforts in several key areas in order to develop new products and expand
applications for existing products, which we believe will enhance our
profitability. We utilize a highly disciplined stage gate process for selecting
product and service opportunities to be developed into commercial businesses. We
are developing new products and services using natural graphite-based products
and synthetic graphite-based products for the fuel cell power generation market,
electronic thermal management market, transportation applications and building
and construction materials applications, industrial thermal management products
for high temperature process applications and conductive products for batteries
and supercapacitor power storage applications.
In December 2000, we announced the introduction of, and began selling, our
new line of eGraf-TM- thermal management products and, in the 2001 first
quarter, we introduced prototypes for heat sinks, heat spreaders and heat pipes
designed to aid the cooling of chip sets and other heat generating components in
computers, communications equipment and other electronic devices. We believe
that our new line of eGraf-TM- products incorporates a superior technology for
heat removal, is as conductive as copper and more conductive than aluminum, is
significantly lighter and has the design flexibility critical to the portable
electronics industry.
ESTABLISHING STRATEGIC ALLIANCES WITH CUSTOMERS, SUPPLIERS AND OTHER THIRD
PARTIES. We intend to accelerate the development and commercialization of
proprietary technologies into high growth markets through strategic alliances in
the form of collaborations, joint ventures, licensing, supply or other
arrangements that leverage our strengths.
We have developed a strategic relationship with Conoco. In December 2000, we
entered into a license and technical services agreement with Conoco to license
our proprietary technology for use at the carbon fiber manufacturing facility
that Conoco is building in Ponca City, Oklahoma. In addition, we will continue
to provide a wide variety of technical services to Conoco. Under a separate
tolling agreement, which was entered into in February 2001, we will provide toll
manufacturing services to Conoco at our Clarksburg, West Virginia facility.
Under the tolling agreement, until Conoco's new facility commences operations,
we will use raw materials provided by Conoco to manufacture the same type of
carbon fibers that will be produced at Conoco's new facility. Conoco's new
carbon fiber technology could be used in portable power applications, such as
batteries for personal computers and cell phones, as well as a wide range of
other electronic devices and automotive applications.
We have been working with Ballard since 1992 on developing natural
graphite-based materials for use for power generation in Ballard fuel cells. We
expect commercialization of fuel cells to occur in the middle of this decade,
particularly as countries around the world deal with environmental problems
62
created from other sources of energy. Advances in fuel cell technology, growth
in worldwide power demand and deregulation of power utilities as well as
environmental issues are driving the market. Potential fuel cell applications
include transportation, stationary and portable applications.
Ballard is the world leader in developing zero-emission fuel cells known as
PEM fuel cells, including direct methanol fuel cells, for power generation.
Seven out of the nine prototype fuel cell vehicles in the California Fuel Cell
Partnership use Ballard's Mark 900 PEM fuel cell stack, including Ford's FC5 and
Daimler Chrysler's NECAR 4A, Jeep Commander and, most recently, NECAR 5. In
2000, the California Air Resource Board reaffirmed its commitment to the
requirement that 2% of vehicles sold in California be zero emission vehicles by
2005.
In 1999, we entered into a collaboration agreement with Ballard to
coordinate our respective research and development efforts on flow field plates
and a supply agreement of flexible graphite materials. In 2000, Ballard launched
its new Mark 900 PEM fuel cell stack and announced that it was the foundation
for Ballard fuel cells for transportation, stationary and portable applications.
The flow field plates used in Ballard's Mark 900 PEM fuel cell stack are made
from our GRAFCELL-TM- advanced flexible graphite products.
In June 2001, our subsidiary, Graftech, entered into a new exclusive
development and collaboration agreement and a new exclusive long-term supply
agreement with Ballard, which significantly expand the scope and term of the
1999 agreements. In addition, Ballard became a strategic investor in Graftech,
investing $5 million for a 2.5% equity ownership interest, to support the
development and commercialization of natural graphitic materials and components
for PEM fuel cells. As an investor in Graftech, Ballard has rights of first
refusal with respect to certain equity ownership transactions, tag along and
drag along rights, and preemptive and other rights to acquire additional equity
ownership under certain limited circumstances.
The scope of the new exclusive development agreement includes natural
graphite-based materials and components, including flow field plates and gas
diffusion layers, for use in PEM fuel cells and fuel cell systems for
transportation, stationary and portable applications. The initial term of this
agreement extends through 2011. As part of this agreement, we have agreed to
develop and manufacture prototype graphitic materials and components and provide
early stage testing of these prototypes in an on-site fuel cell testing center.
Under the new supply agreement, we will be the exclusive manufacturer and
supplier of natural graphite-based materials for Ballard fuel cells and fuel
cell systems. We will also be the exclusive manufacturer of natural
graphite-based components, other than those components Ballard manufactures for
itself. The initial term of this agreement, which contains customary terms and
conditions, extends through 2016. We have the right to manufacture and sell,
after agreed upon release dates, natural graphite-based materials and components
for use in PEM fuel cells to other parties in the fuel cell industry. In
connection with the manufacture and sale of components, Ballard will grant us a
royalty-bearing license for related manufacturing process technology.
SETTING AND ACHIEVING THOSE MILESTONES WHICH ARE CRITICAL TO THE SUCCESSFUL,
TIMELY COMMERCIALIZATION OF OUR TECHNOLOGIES. We believe that our success at
commercializing proprietary technologies and services into high growth markets
is dependent upon our ability to aggressively set and consistently achieve our
own milestones and the milestones set by our strategic partners and customers.
These milestones are established to allocate resources and to be leading
indicators of progress toward this division's strategic goal. Our own milestones
for 2001 include targets for revenue growth, intellectual property development
and protection, expansion of strategic alliances, prototype product development,
next generation product development, and the start-up of our first advanced
flexible graphite production line.
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MARKETS AND INDUSTRY OVERVIEW
We currently serve the transportation, semiconductor, aerospace, fuel cell
power generation, electronics and other markets. We are currently one of the
largest suppliers of flexible graphite for use in the automotive, chemical and
petrochemical markets. We also manufacture ultra high purity extruded, molded
and isomolded graphites, specialty and coated specialty graphites, and
graphite-based rigid insulation for use in products in the semiconductor market.
We also produce advanced composites that often play an important part in
manufacturing molds for large equipment design, development and manufacturing
processes for the aerospace industry. We produce natural graphite-based products
that are used in the fuel cell power generation and electronics markets.
We are developing proprietary technologies and products primarily for the
following high growth markets:
- materials and components for PEM fuel cells and fuel cell systems,
including flow field plates and gas diffusion layers, for the fuel cell
power generation market,
- electronic thermal management products, including thermal interface
products and designs, heat spreaders, heat sinks and heat pipes for
computer, communications, industrial, military, office equipment and
automotive electronic applications,
- fire retardant products for transportation applications and building and
construction materials applications,
- industrial thermal management products for high temperature process
applications, and
- conductive products for batteries and supercapacitor power storage
applications.
FUEL CELL POWER GENERATION. Fuel cells were invented in 1839 and were first
used in practical applications in the 1960s in the Gemini and Apollo space
programs to provide electricity aboard the spacecraft. Fuel cells efficiently
convert fuel to electricity. Recently, the potential for pollution free power
has been the major driver behind the development of fuel cell technology for
transportation, portable and stationary applications.
A fuel cell is an environmentally clean power generator, which combines
hydrogen (which can be obtained from a variety of sources, for example,
methanol, natural gas, and other fuels) with oxygen (from air, not necessarily
pure) to produce electricity through an electrochemical process without
combustion. The only by-products from this process are water and heat. We
believe that PEM fuel cells have emerged as the leading fuel cell technology
because they offer higher power density, reduced weight, lower cost and improved
performance relative to alternative fuel cell technologies.
PEM fuel cells have the potential for use as replacements for existing power
generation systems in the following applications:
- power generation for transportation applications, including automobiles,
buses and other vehicles,
- portable power generators for equipment and electronic devices, and
- stationary power applications for residences, commercial buildings or
industrial operations.
TRANSPORTATION MARKET. Currently, manufacturers of automobiles, buses and
other vehicles are searching for a viable alternative to the internal combustion
engine. PEM fuel cells have the potential to provide the power of an internal
combustion engine, to reduce or eliminate polluting emissions, and to lower
vehicle operating costs through higher fuel efficiency and lower maintenance
costs. The use of fuel cells in the U.S. in light vehicles for transportation
applications has been projected by Frost & Sullivan to reach 2.6 million
vehicles by 2010.
64
We believe, based on statements by Ballard's customers and other automobile
manufacturers, that initial commercial sales of PEM fuel cells for use in
automobiles will occur by 2005. Seven out of the nine prototype fuel cell
vehicles in the California Fuel Cell Partnership use Ballard's Mark 900 PEM fuel
cell stack, including Ford's FC5 and Daimler Chrysler's NECAR 4A, Jeep Commander
and, most recently, NECAR 5.
We believe that there are significant market opportunities for PEM fuel cell
vehicles, and that the strength of these markets will be supported by regulatory
pressures for cleaner, lower-emission vehicles. We estimate that, in 2000,
global production of automobiles and light vehicles was about 55 million units.
PORTABLE POWER MARKET. Portable power markets include products for
construction, marine and industrial applications, as well as for a wide variety
of consumer products, including power for computers, cell phones and handheld
devices. We believe that the fastest growing segment is expected to be portable
electronic devices including laptop computers, cell phones and handheld devices.
Fuel cells may be a potential replacement for power needs currently served
by rechargeable and nonrechargeable batteries in many portable electronic
devices. According to Allied Business Intelligence, Inc., over 40 billion
batteries are produced worldwide each year, including non-chargeable and
rechargeable batteries. In 1999, according to Allied Business Intelligence,
Inc., the global rechargeable battery market was estimated to be about
$4 billion alone, with annual growth rates approaching 16%. We believe that the
portable power market provides a business opportunity for fuel cell power
generation.
STATIONARY POWER MARKET. Fuel cells may be a potential replacement for
electric power for residential, commercial and industrial stationary power
applications. According to the Department of Energy, U.S. power sales in 1999
were about $217 billion. Increases in demand are expected to be driven largely
by the adoption by the U.S. and worldwide economies of new digital and
communications systems and infrastructures. In addition, electric power demand
is expected to grow as a result of the industrialization of developing nations,
expanding worldwide economies, population growth and per capita income growth.
We believe that power quality and reliability will become increasingly important
factors for customers involved with all aspects of technology and communications
applications and that distributed generation technologies such as fuel cells
will be favored due to their ability to deliver high quality, reliable power.
We believe that expansion of the existing electric power infrastructure may
not reliably meet the growth in demand for electric power. Not only is there a
shortage of generating assets in some areas, but recent experience suggests that
an aging transmission and distribution grid is not keeping pace with the growth
in demand, resulting in bottlenecks and load pockets. Increasing the existing
and aging infrastructure to meet capacity requirements is expected to be capital
intensive and time consuming, and may be restricted by environmental concerns.
We believe that fuel cells offer a solution for overcoming many of these
obstacles because they provide energy, in the form of heat and electric power,
at the point of demand rather than relying on large, capital intensive central
generation facilities.
ELECTRONIC THERMAL MANAGEMENT. As electronics manufacturers develop highly
advanced integrated circuits, processing chips and power supplies, their ability
to dissipate heat is constrained by current thermal management products and
technology. We are developing and introducing high quality, highly engineered
products, designs and solutions for thermal management in computer,
communications, industrial, military, office equipment and automotive electronic
applications.
We are developing thermal interface products and designs, heat sinks, heat
spreaders and heat pipe products. Thermal interface products are those products
that reside between the chip set or other heat generating device and the
remaining components in the heat dissipation system. Heat sinks are finned
devices that dissipate heat into the surrounding environment either through
being mounted on
65
processors or elsewhere in the electronic enclosure. Heat spreaders are
engineered plates that move heat from hot spots, such as processor chips, to
desired locations for dissipation into the external environment. Heat pipes are
also devices that move heat, through a tube, from heat sources to the edge of
the device where the heat can be dissipated into the environment.
We expect that our products' superior ability to manage heat will allow
engineers to redesign electronics to reduce cost, size and weight while
improving performance. Our advanced flexible graphite offers many advantages
over competitive products in the market for mobile communications and other
electronic devices, as compared to aluminum or copper. These advantages include
their:
- excellent ability to conduct heat,
- mechanical and thermal stability,
- lightweight, compressible and conformable nature,
- cost competitiveness, and
- ease of handling.
In December 2000, we announced the introduction of, and began selling, our
new line of eGraf-TM- thermal management products designed to aid the cooling of
chip sets and other heat generating components in computers, communications
equipment and other electronic devices. We can provide custom or off-the-shelf
thermal interface products and designs, heat sinks, heat spreaders and heat
pipes and sophisticated thermal solutions for cooling complex devices.
We believe that the thermal component market demand for computers,
communication, industrial, military, office equipment and automotive electronic
applications was about $3.25 billion in 2000. We are targeting thermal interface
products, with a projected market of about $400 million in annual sales by 2005,
and an annual growth rate of about 17% through 2005, in each case, as projected
by Business Communications Company, Inc.; heat sink products, with a projected
market of about $850 million in annual sales by 2005, and an annual growth rate
of about 10% through 2005, in each case, as projected by Business Communications
Company, Inc.; and heat spreader and heat pipe products, with a projected market
of about $585 million in annual sales by 2005, and an annual growth rate of
about 20% through 2005, in each case, as projected by Business Communications
Company, Inc.
FIRE RETARDANT PRODUCTS FOR TRANSPORTATION APPLICATIONS AND BUILDING AND
CONSTRUCTION MATERIALS APPLICATIONS. Our GRAFGUARD-Registered Trademark-
expandable graphite flake is a fire retardant additive for materials that
require improved fire protection characteristics, including wood products, foam,
plastics and other construction and building materials. Expandable graphite can
be used to improve the performance of traditional fire retardant additives,
including phosphates, halogens and nitrogen compounds. We believe that the
growing use of expandable graphite will be driven by increasingly stringent
performance requirements for fire retardant materials. According to SRI
Consulting, the worldwide market for flame retardants in 1998 was about
$2.1 billion and the market is expected to grow at an average annual rate of
about 3.5% through 2003.
INDUSTRIAL THERMAL MANAGEMENT PRODUCTS FOR HIGH TEMPERATURE PROCESS
APPLICATIONS. We estimate that industrial thermal management products for high
temperature processing will be a nearly $600 million market in the U.S. in 2001.
We intend to target the heat treating component segment and the direct
solidification component segment of this market. We believe that our engineered
graphite products can provide superior heat management solutions for insulation
packages, induction furnaces, high temperature vacuum furnaces and direct
solidification furnaces.
CONDUCTIVE PRODUCTS FOR BATTERIES AND SUPERCAPACITOR POWER STORAGE
APPLICATIONS. We have modified the performance characteristics of our natural
graphite materials to provide solutions for conductive products for batteries
and supercapacitor power storage applications. We believe that natural graphite
66
can perform better than synthetic graphite in alkaline and lithium-ion batteries
and that it also may prove useful as a highly conductive component of
supercapacitors.
According to Allied Business Intelligence, Inc., over 40 billion batteries
are produced worldwide each year, including non-chargeable and rechargeable
products, and, according to Allied Business Intelligence, Inc., the global
rechargeable battery market is estimated to have been about $4 billion in 1999,
with annual growth rates approaching 16%. Graphite powders are a critical
component of alkaline and lithium-ion batteries, since they provide the
electrical conductivity necessary to optimize battery performance. We believe
that the lithium-ion battery market provides a high growth opportunity for our
products. Rechargeable lithium-ion batteries are used in a growing number of
portable electronics applications, including laptop computers and cellular
telephones. Lithium-ion batteries can store more power and be recharged more
times than other battery technologies.
We believe that the emergence of supercapacitors is based on the need for
energy storage devices in the electronics industry. Capacitors have been used
for many years in electrical circuits to store small amounts of charge and
regulate the flow of current. Supercapacitors are now being developed that can
store thousands of times more power in a smaller space, and can be recharged
hundreds of thousands of times.
PRODUCTS AND SERVICES
This division currently produces a wide variety of graphite- and
carbon-based products, including:
- synthetic graphite-based products, including molded, extruded and
isomolded graphite products,
- natural graphite-based products, including expandable graphite, flexible
graphite and advanced flexible graphite products, and
- graphite and carbon refractories.
The versatility of our proprietary processes and equipment enables us to
modify our synthetic and natural graphite-based products to meet a variety of
customer specifications. We work with our customers to develop technologically
advanced solutions, utilizing our knowledge and expertise in the production of
these products. This division also provides technology licensing and technical
services.
SYNTHETIC GRAPHITE. We use a variety of proprietary processes to convert
petroleum coke into primary and machined graphite specialty products, including
molded, extruded or isomolded graphite products. We market our molded and
extruded specialty products in a wide range of grades. Our superfine grain high
strength isostatically molded graphites are marketed under the
DURABURN-Registered Trademark-, DURACAST-Registered Trademark- and
DURAPRESS-Registered Trademark- names. Synthetic graphite is used in a wide
variety of markets, including the transportation and semiconductor markets.
EXPANDABLE GRAPHITE. We use a proprietary process to convert natural
graphite flake into expandable graphite. During this process, we can manufacture
expandable graphite with a number of specific properties. For example, by
changing expandable graphite's sensitivity to temperature, modifying its
particle size and giving it long-term stability, we created
GRAFGUARD-Registered Trademark- graphite flake for use in fire retardant
applications. The expansion property of our GRAFGUARD-Registered Trademark-
graphite flake is the basis for its use in a growing number of fire retardant
applications.
67
FLEXIBLE GRAPHITE. We produce flexible graphite from expandable graphite
flake, and can further fabricate the flexible graphite into a variety of sheet,
laminate and tape products. Flexible graphite is lightweight, conformable,
temperature-resistant and inert to most chemicals. Due to these characteristics,
it is an excellent sealing material that to date has been used primarily in high
temperature and corrosive environments in the automotive, chemical and
petrochemical industries. For example, automotive applications for our flexible
graphite products include head gaskets and exhaust gaskets as well as engine and
exhaust heat shields. We market our flexible graphite products under the
GRAFOIL-Registered Trademark- name. In December 2000, we introduced our new line
of eGraf-TM- thermal management products designed to aid the cooling of chip
sets and other heat generating components in computers, communications equipment
and other electronic devices.
ADVANCED FLEXIBLE GRAPHITE. We produce advanced flexible graphite by
subjecting expandable or flexible graphite to additional proprietary processing.
These additional processing steps alter the properties and characteristics of
the graphite to make materials with modified electrical, thermal and strength
characteristics. Advanced flexible graphite can be used in the production of
materials and components for PEM fuel cells and fuel cell systems, electronic
thermal management products, including thermal interface products and designs,
heat spreaders, heat sinks and heat pipes, for computer, communications,
industrial, military, office equipment and automotive electronic applications,
industrial thermal management products for high temperature process applications
and conductive products for batteries and supercapacitor power storage
applications. We market our advanced flexible graphite products under the
GRAFCELL-TM- name for fuel cell applications and under the GRAFSHIELD-TM- name
for high temperature industrial furnace applications.
GRAPHITE AND CARBON REFRACTORIES. We produce a wide variety of graphite and
carbon refractory grade brick for chemical industry tank and reactor lining and
blast furnace and submerged arc furnace hearth wall applications. Our hot
pressed brick manufacturing capability is located at our facility in
Lawrenceburg, Tennessee. Carbon brick, used primarily in blast furnace and
submerged arc furnace hearth walls, is one of the established standards for
North American blast furnace hearth walls. Our semi-graphite brick is used in
blast furnace and hearth wall applications where higher conductivity is required
or when additional abrasion resistance is desired. Carbon brick is also widely
used in the chemical industry for tank and reactor linings because it has
excellent resistance to corrosion and abrasion. Hot pressed bricks are made in a
multitude of standard shapes and sizes, and can also be cut to custom sizes.
Carbon refractory blocks are manufactured in our facility in Columbia,
Tennessee. The largest application for these carbon refractory blocks is hearth
bottom pads in blast furnaces and submerged arc furnaces, for which they are
machined to shape and assembled in a variety of designs. Our facility is also
capable of providing special shapes (e.g., sidewall blocks, tap blocks, tuyere
surrounds, runner liners, etc.) for blast furnaces, submerged arc furnaces, and
cupola furnaces.
Graphite refractory grade brick is used primarily for its high thermal
conductivity and the ease with which it is machined to large and/or complex
shapes. Common applications in blast furnaces and submerged arc furnaces are
"cooling courses" in the hearth bottoms for heat distribution and removal,
backup linings in hearth walls for improved heat transfer and safety, and
lintels over copper cooling plates, where a single brick cannot span the cooling
plate.
TECHNOLOGY LICENSING AND TECHNICAL SERVICES. We have over 100 years of
product and process technology and knowhow in a wide range of carbon and
graphite industries. This division offers, through licensing contracts, rights
to use our intellectual property to other firms developing or manufacturing
products. This division also provides, through service supply contracts research
and development services, extensive product testing services, and graphite and
carbon process and product technology information services to customers,
suppliers and universities to assist in their development of new or improved
process and product technology.
68
MANUFACTURING PROCESSES
This division operates five state-of-the-art manufacturing facilities at
locations in the U.S. and Europe. Our facilities for manufacturing carbon and
synthetic graphite products have the capability to process a wide range of raw
materials, mill, mix and extrude or mold small to very large carbon and graphite
blocks, impregnate, bake, process and graphitize the blocks, extensively purify
the blocks to reduce the impurities to parts per million levels, and provide
finished products from high tolerance machining stations. Our facilities for
manufacturing natural graphite products have the capability to chemically treat
natural graphite flake, bake flake in high temperature furnaces to expand the
graphite flake, mechanically form and calender the expanded flake and form and
shape the final products.
We use robotics and statistical process controls in manufacturing processes
and have a total quality control program that involves significant in-house
training. We utilize sophisticated "pipeline" manufacturing and logistical
systems at most of these manufacturing facilities. These controls, programs and
systems have improved product quality, reduced waste in the manufacturing
process, resulted in more efficient utilization of manufacturing personnel and
equipment, improved efficiency in customer order processing and reduced
inventory requirements. We have installed at some of these facilities and intend
to install at all of these manufacturing facilities proprietary process
technology to further reduce manufacturing cycle times, increase cost efficiency
and improve coordination between production scheduling and forecast sales.
INTELLECTUAL PROPERTY
We own or have obtained licenses to various domestic and foreign patents,
patent applications and trademarks related to products, processes and business
of this division. These patents expire at various times over the next 18 years.
These patents and patent applications in the aggregate are important to our
competitive position and growth opportunities, particularly in connection with
our natural graphite business. In 2000, this division was awarded 15 patents and
filed an additional 34 patent applications for fuel cell and other technologies.
This division currently holds about 140 of our issued patents and about 250 of
our pending patent applications and perfected patent application priority rights
worldwide. We hold the highest number of patents worldwide for flexible graphite
for PEM fuel cell applications. We also hold patents and pending patent
applications for electronic thermal management products, including thermal
interface products and designs, heat spreaders, heat sinks and heat pipes, for
computer, communications, industrial, military, office equipment and automotive
electronic applications, fire retardant products for transportation applications
and building and construction materials applications, industrial thermal
management products for high temperature process applications and conductive
products for batteries and supercapacitor power storage applications.
We own various tradenames and trademarks used in our businesses. We have
know-how and proprietary information that is important to our competitive
position and growth opportunities of this division. We seek to protect our
know-how and proprietary information, as we believe appropriate, through written
confidentiality and restricted use agreements with employees, consultants and
others and through various operating and other procedures.
We cannot assure you that protection for our intellectual property under our
patents and our measures to protect know-how and proprietary information will be
effective or that our use of intellectual property does not infringe the rights
of others.
RESEARCH AND DEVELOPMENT
We conduct our research and development program both independently and in
conjunction with our strategic partners. Currently, about 55 of our technical
professionals located at our Parma technology development facility, which is
used by both of our divisions, are directly involved in research and
development, primarily for this division. A significant portion of this
division's research and development program is focused on its alliance with
Ballard, on its development alliances with companies that use thermal management
technologies, on its technology licensing and technical services
69
business and on new product development. These activities are integrated with
the efforts of our engineers at manufacturing facilities who are focused on
improving manufacturing processes.
Our Parma facility has the capability to provide small quantity or trial
quantity production through its pilot plant facility. We operate a
state-of-the-art testing facility capable of conducting physical and analytical
testing to develop natural and synthetic graphite and carbon products and
process technology.
We believe that our research and development capabilities were an important
factor in Ballard's selection of us to enter into an exclusive long term product
development and collaboration agreement. Our combined development efforts have
led to significant advancements in materials and components used in Ballard fuel
cells. We also believe that our research and development capabilities and our
high temperature processing technology were important factors in Conoco's
selection of us as a provider of technology for its carbon fiber business.
SALES AND CUSTOMER SERVICE
This division sells products to customers in the U.S. and Europe through its
direct sales force, whose members have been trained and are experienced with our
products. Currently, this division has 14 direct field sales employees in the
U.S. and seven in Europe. This division also sells products in Eastern Europe,
Asia and South America through independent sales agents and distributors. It is
presently expanding, and intends to continue to expand, its international market
presence through the use of direct sales and select, full-service distributors.
We have a strong commitment to provide a high level of technical service to
our customers, and this division has staff in both Europe and the U.S. to
support its customers. This division assists its customers in learning about and
using its products, improving their manufacturing processes and operations and
solving their technical dilemmas. Its staff of development scientists and
manufacturing engineers is also available to support customers as needed. This
division works closely with its customers to develop and test prototype
materials. This division's customer sales team coordinates sales, technology and
manufacturing efforts to meet customer needs. It has a quality assurance system
designed to meet the most stringent requirements of our customers. Select plants
are certified and registered to QS-9000 as well as the IS0-9002 international
quality standard based on the products being supplied.
RAW MATERIALS AND SUPPLIERS
The primary raw materials for this division are petroleum coke, pitch and
natural graphite. We believe that adequate supplies of these raw materials are
available at market prices. Typically, this division purchases raw materials
from a variety of sources at market prices. We have entered into an arrangement
with Mazarin Mining Corporation Inc. to develop and commercialize a natural
graphite deposit in Canada. The initial phase of the feasibility study, relating
to the quality of the natural graphite flake in the deposit, was completed in
2000 with favorable results. The second phase of the feasibility study is
expected to be completed by the end of 2002. The feasability study is expected
to cost about $2 million, for which we will receive a 25% interest in the mine.
After completion of the study, we may decide to commence commercial production
of the deposit with Mazarin, exercise an option to extend the period for the
development decision for five one-year periods until 2007, or terminate the
arrangement. In the case of extension, we will have to make option payments
totalling Cdn. $7.5 million if the option is extended for the full five years.
We have the right to purchase the entire production of natural graphite flake
from the deposit. We believe that at full capacity, if developed, the deposit
should produce about 50,000 tons of natural graphite flake per year, which would
make it one of the largest single sources of natural graphite flake in the
world. We believe that, if developed, the deposit is expected to have sufficient
reserves to meet projected needs of this division for the next 10 to 15 years.
Consummation of the arrangement is subject to, among other things, the receipt
of any required governmental approvals.
The availability and price of raw materials and energy may be subject to
curtailment or change due to limitations which may be imposed under new
legislation or governmental regulations, suppliers'
70
allocations to meet demand of other purchasers during periods of shortage (or,
in the case of energy suppliers, extended cold weather), interruptions in
production by suppliers and market and other events and conditions. Prior to
mid-2000, we mitigated the effect of raw material and energy price increases on
our results of operations.
-13-
operations through a combination of improved operating efficiency
and permanent on-going cost savings. Beginning in mid-2000, we began to
experience higher energy and raw material costs primarily due to the substantial
increase in worldwide market price of oil and natural gas. These increases have
adversely impacted our costs. A substantial increase in raw material or energy
prices, which cannot be mitigated or passed on to customers, or a continued
interruption in supply would have a material adverse effect on this division.
DISTRIBUTION
Our products are generally manufactured or fabricated to meet customer
orders. Finished products are generally stored at our manufacturing facilities
and we seek to maintain adequate inventory levels. We ship our finished products
to customers primarily by truck and ship, using "just in time" techniques where
practical. Limited quantities of finished products are stored at local
warehouses around the world to meet customer needs.
COMPETITION
Competitors of this division include companies located around the world that
develop and manufacture graphite- and carbon-based products, including SGL
Carbon Group, Toyo Tonso Co. Ltd., Le Carbone S.A. (Pty) Ltd., Tokai and Nippon
Carbon Co., Ltd., and companies that develop, manufacture or provide substitute
or alternative materials, products, services or solutions.
Our PEM fuel cell products compete with other graphitic products, including
fibers, composites and synthetic graphite, and metal-based products such as
stainless steel. Our electronic thermal management products compete with a wide
variety of materials, including copper and other metals, ceramics, conductive
rubbers and greases. Our fire protection products compete with compounds
containing phosphates, halogens and hydrated aluminas as well as many other
materials. Our sealing products compete with various fiber products such as
asbestos, cellulose and synthetic composites as well as stainless steel and
other metals. Our industrial thermal management products compete with a wide
variety of materials, including natural and synthetic fibers, other carbon forms
and metal-based products. Our conductive products compete with other carbon
products, such as carbon black.
Competition with respect to our existing products sold to the
transportation, semiconductor, aerospace and electronic thermal management
markets is based primarily on quality and price. Competition with respect to our
services and our new products is, and is expected to be, based primarily on
innovation, performance, cost effectiveness and customer service, with the
relative importance of these factors varying among products and customers.
ENVIRONMENTAL MATTERS
The Company's operationsWe are subject to a wide variety of federal, state, local and foreign laws
and regulations relating to the presence, storage, handling, generation,
treatment, emission, release, discharge and disposal of certainhazardous, toxic and
other substances and wastes.
While the Company believes that it is currently in material compliance with
thosewastes governing our current and former properties and
neighboring properties and our current operations. These laws and regulations
there can be no assurance that the Company will not
incur significant costs to remediate violations thereof or to comply with
changes in existing laws and regulations (or(and the enforcement thereof). Such are periodically changed and are becoming
increasingly stringent. We have experienced some level of regulatory scrutiny at
most of our current and former facilities, have been required to take remedial
action and have incurred related costs in the past and may experience further
regulatory scrutiny, be required to take further remedial action and incur
additional costs in the future. Although this has not been the case in the past,
these costs could have a material adverse effect on the Company's results of
operations.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
UCAR's Certificate of Incorporation and By-Laws contain provisions
concerning voting, issuance of preferred stock, removal of officers and
directors and other matters which may have the effect of discouraging, delaying
or preventing a change in control of UCAR. The Subordinated Note Indenture
requires Global,us in the event of a change of control in respect offuture.
The principal U.S. laws and regulations to which it has
not elected to redeemwe are subject include the
Subordinated Notes, to repurchase any Subordinated
Notes that holders thereof desire to have repurchased at 101% ofClean Air Act, the principal
amount thereof, plus accrued interest.Clean Water Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act and similar state and local laws which regulate air
emissions, water discharges and hazardous waste
71
generation, treatment, storage, handling, transportation and disposal. In
addition, the Senior Bank Facilities
restrict certain events which would constitute a changeComprehensive Environmental Response, Compensation and Liability
Act of control and provide
that certain events which would constitute a change in control would also
constitute an event of default. The exercise1980, as amended by the holdersSuperfund Amendments and Reauthorization Act of
1986, and similar state laws provide for responses to and liability for releases
of hazardous substances into the Subordinated
Notesenvironment. The Toxic Substances Control Act
and related laws are designed to assess the risk of their rightnew products to require Global to repurchase the Subordinated Notes may
cause a default under the Senior Bank Facilities or other indebtedness, even if
the change of control does not. Finally, there can be no assurance that Global
will have the financial resources necessary to purchase the Subordinated Notes
upon a change of control or repay amounts due under the Senior Bank Facilities
upon such an event of default.
SHARES ELIGIBLE FOR FUTURE SALE
As of February 28, 1997, 46,797,777 shares of Common Stock were
outstanding. In addition, as of February 28, 1997, UCAR had reserved an
additional 6,568,769 shares of Common Stock for issuance pursuant to employee
stock optionhealth and equity incentive plans. In general, the outstanding shares are,
and any reserved shares issued (other than reserved shares issued to affiliates
of UCAR) will be, freely transferable by persons other than affiliates of UCAR.
Outstanding shares held by, and any reserved shares issued to, affiliates of
UCAR may not be sold other than pursuant to an effective registration statement
or Rule 144 or another exemption from registration under the Securities Act.
Outstanding shares acquired by management in the Recapitalization or to be
acquired upon exercise of stock options (or otherwise acquired under employee
stock option or equity incentive plans) have been or will be registered for
resale
to the public. In connection with the Recapitalization, UCAR has granted
to Blackstone certain 'piggy-back' registration rights with respect to shares of
Common Stock owned by Blackstone, which rights will continueenvironment at early developmental stages. Finally, laws adopted or
proposed in effect after
the closing of the Offering and the Blackstone Share Repurchase. Following
the closing of the Offering and the Blackstone Share Repurchase and excluding
the Retained Interest, Blackstone will own 611,227 shares of Common Stock
(no shares, if the over-allotment option is exercised in full). UCAR, certain
of its executive officers and directors and Blackstone have agreed that,
for a period of 90 days, invarious states impose or may impose, as the case of UCAR, and 45 days, inmay be, reporting
or remediation requirements if operations cease or property is transferred or
sold.
Our manufacturing operations outside the case of
Blackstone and certain of UCAR's directors and executive officers, after the
date of this Prospectus, they will not sell or otherwise dispose of any shares
of Common Stock without the prior written consent of Credit Suisse First
Boston Corporation, subject to certain limited exceptions. The shares included
in the Retained Interest will be freely transferable after the end of such
45-day period, except that if the distributee is or has been an affiliate of
UCAR, sales by such distributee will beU.S. are subject to the volumelaws and
other
limitationsregulations of Rule 144 until such time as the distributee has not been an
affiliate within the three-month period preceding the sale. No prediction can be
made as to the effect, if any, that future sales of shares, or the availability
of shares for future sale, will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock in
the public market, or the perception that such sales could occur, could
adversely affect prevailing market prices for the Common Stock and could impair
UCAR's ability to raise capital through an offering of its equity securities.
-14-
THE COMPANY
The Company's business was founded in 1886 by National Carbon Company. In
1917, National Carbon Company, along with Union Carbide Company and three other
companies, became subsidiaries of a new corporation named Union Carbide and
Carbon Company, now known as Union Carbide Corporation ('Union Carbide'). In the
1950s, National Carbon Company was dissolved, and its business subsequently
became the Carbon Products Division of Union Carbide.
Effective January 1, 1989, Union Carbide realigned each of its worldwide
businesses into separate subsidiaries (the 'Realignment'). In connection
therewith, the business of the Carbon Products Division was separated from Union
Carbide's other busineses and became owned by the Company, which was then
wholly-owned by Union Carbide. On February 25, 1991, Union Carbide sold 50% of
the common equity of the Company to Mitsubishi Corporation ('Mitsubishi') for
$233 million (the 'Mitsubishi Purchase'). Since the Mitsubishi Purchase, the
Company has operated on a stand alone basis in all material respects. In this
regard, the Company has been self-financing, except for certain credit
enhancements which were provided by Union Carbide and Mitsubishi and which the
Company terminated in their entirety in September 1994.
On January 26, 1995, the Company consummated the Recapitalization pursuant
to the Recapitalization and Stock Purchase and Sale Agreement dated as of
November 14, 1994 (the 'Recapitalization Agreement') among Union Carbide,
Mitsubishi, UCAR and Blackstone. Pursuant to the Recapitalization: (i) UCAR
issued Common Stock representing approximately 75% of the then outstanding
Common Stock to Blackstone, Chase Equity Associates, L.P. and certain members of
management for $203 million; (ii) Global and certain of its subsidiaries
borrowed $585 million under senior secured bank facilities (the
'Recapitalization Bank Facilities'); (iii) Global issued $375 million of
Subordinated Notes; (iv) the Company repaid approximately $250 million of then
existing indebtedness; (v) UCAR repurchased and cancelled all of the common
equity then held by Mitsubishi for $406 million; (vi) UCAR paid to Union Carbide
a cash dividend of $347 million on the common equity then held by Union Carbide,
which common equity was reclassified and immediately thereafter represented
approximately 25% of the then outstanding Common Stock; and (vii) certain
members of management received restricted stock matching a portion of the Common
Stock purchased by them and options to purchase up to an aggregate of 12% of the
then outstanding Common Stock on a fully diluted basis, subject to certain
vesting provisions. In connection with the Recapitalization, the Company
transferred all of the stock of its operating subsidiaries to Global or
subsidiaries of Global. UCAR currently holds no material assets other than
common stock of Global.
On August 15, 1995, UCAR completed the initial public offering of Common
Stock (the 'Initial Offering'). In connection with the Initial Offering, UCAR
sold Common Stock representing 22% of the Common Stock outstanding immediately
after the Initial Offering for net proceeds of $227 million and Union Carbide
sold all of the Common Stock then owned by it. UCAR used net proceeds from the
Initial Offering to contribute to Global an amount sufficient to redeem $175
million aggregate principal amount of Subordinated Notes at a redemption price
equal to 110% of the aggregate principal amount thereof, plus accrued interest
thereon of $4 million (the 'Redemption'). On October 19, 1995, the Company
refinanced the Recapitalization Bank Facilities with the Senior Bank Facilities
at more favorable interest rates and with more favorable covenants (the
'Refinancing'). The Redemption and Refinancing reduced the Company's annual
interest expense by approximately $34 million (based on the principal amounts
outstanding and the interest rates in effect at the time of the Redemption and
the Refinancing, respectively). The Senior Bank Facilities were amended on March
19, 1997. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources.'
In March 1996, certain stockholders of UCAR sold an aggregate of 16,675,000
shares of Common Stock in a secondary public offering (the 'Secondary
Offering'). In the Secondary Offering, Blackstone, Chase Equity Associates, L.P.
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
stock options concurrently with the Secondary Offering, and UCAR received
proceeds of approximately $1.5 million from the exercise of such options.
-15-
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is listed on the NYSE under the trading symbol 'UCR.' The
following table sets forth on a per share basis the high and low sale prices for
the Common Stock as reported on the NYSE for the periods indicated:
HIGH LOW
---------- ----------
1995
Third Quarter*............................................................. $ 29 1/4 $ 24 3/4
Fourth Quarter............................................................. 33 3/4 26 3/8
1996
First Quarter.............................................................. 39 1/2 31
Second Quarter............................................................. 44 7/8 39
Third Quarter.............................................................. 41 7/8 34 3/4
Fourth Quarter............................................................. 41 1/8 32 5/8
1997
First Quarter (through April 2, 1997)...................................... 45 1/4 36 5/8
- ------------------
* Public trading commenced on August 10, 1995.
As of December 31, 1996, there were 66 holders of record of outstanding
shares of Common Stock. The Company estimates that approximately 9,700
stockholders are represented by nominees.
Although the Company is currently able to pay certain cash dividends, it is
the current policy of UCAR's Board of Directors to retain earnings to finance
operations, fund acquisitions, repurchase shares of Common Stock and repay debt.
Any declaration and payment of cash dividends will be subject to the discretion
of UCAR's Board of Directors and will be dependent upon the Company's financial
condition, results of operations, cash requirements and future prospects, the
limitations contained in the Senior Bank Facilities and the Subordinated Note
Indenture and other factors deemed relevant by UCAR's Board of Directors. There
can be no assurance that any cash dividends will be declared or paid.
UCAR is a holding company that derives all of its cash flow from Global,
the common stock of which constitutes UCAR's only material asset. Consequently,
UCAR's ability to pay dividends is dependent upon the earnings of Global and its
subsidiaries and the distribution of those earnings by Global to UCAR.
Under the Senior Bank Facilities as amended on March 19, 1997, Global and
UCAR are permitted to pay dividends to their respective stockholders and
repurchase Common Stock only in an aggregate cumulative amount subsequent to
March 19, 1997 equal to a percentage, ranging from 50% to 65% based on certain
financial tests, of cumulative adjusted consolidated net income subsequent to
December 31, 1996 (provided that (i) in any event, dividends and repurchases
aggregating up to $15 million are permitted in any twelve-month period and (ii)
dividends and repurchases that were permitted during the period from October 19,
1995 through December 31, 1996 but not paid or made (not exceeding $45,000,000)
may be paid or made during 1997 in addition to dividends and repurchases
otherwise permitted in 1997). In addition, if certain financial tests are not
met, total dividends and repurchases in any year may not exceed $65,000,000. In
addition, Global is permitted to pay dividends to UCAR (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. In general,
amounts which are permitted to be paid as dividends or used to repurchase Common
Stock in a year but not so paid or used may be paid or used in subsequent years.
The Subordinated Note Indenture 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 dividends paid exceeds specified aggregate limits based on consolidated
net income, net proceeds from asset and stock sales and certain other
transactions. Such restrictions are not applicable to dividends paid to UCAR (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 in the amount of up to $5 million per year or
$25 million in the aggregate.
USE OF PROCEEDS
All of the Shares offered hereby are being sold by the Selling
Stockholders. UCAR will not receive any of the proceeds from the sale of Shares
by the Selling Stockholders.
-16-
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at December 31, 1996. This table should be read in conjunction with
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Consolidated Financial Statements and related notes which
are incorporated by reference herein.
AT DECEMBER 31, 1996
---------------------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................................................... $ 95
------
------
Debt (including current portion):
Revolving credit facility under Senior Bank Facilities(a)................................. $ 27
Term loans under Senior Bank Facilities................................................... 352
Subordinated Notes........................................................................ 200
Other debt(b)............................................................................. 56
------
Total debt............................................................................. 635
------
Minority stockholders' equity in consolidated entities...................................... 6
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--
46,614,724 shares...................................................................... --
Additional paid-in capital................................................................ 498
Cumulative foreign currency translation adjustment........................................ (116)
Retained earnings (deficit)............................................................... (384)
------
Total stockholders' equity (deficit)................................................... (2)
------
Total capitalization................................................................. $ 639
------
------
- ------------------
(a) On March 19, 1997, the Senior Bank Facilities were amended to reduce the
interest rates on amounts outstanding under the Senior Bank Facilities, to
increase the amount available under the revolving credit facility to $250
million from $100 million and to change the covenants to allow more
flexibility in uses of free cash flow for acquisitions, capital
expenditures and stock repurchases. At March 31, 1997, amounts outstanding
under the revolving credit facility totalled approximately $39 million. The
Company expects to finance the Blackstone Share Repurchase primarily from
borrowings under the revolving credit facility. If the Blackstone Share
Repurchase were financed entirely from borrowings under the revolving credit
facility, amounts under the revolving credit facility would have totalled
approximately $87 million at March 31, 1997.
(b) As of March 31, 1997, other debt totalled approximately $78 million. The
increase was principally due to new borrowings by certain of the Company's
foreign subsidiaries.
-17-
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected annual consolidated financial data (excluding the
'quantity of graphite electrodes sold') has been derived from the Consolidated
Financial Statements at the dates and for the periods indicated, which have been
audited by KPMG Peat Marwick LLP as indicated in their reports thereon. The
selected annual consolidated financial data set forth below should be read in
conjunction with 'Management's Discussion and Analysis of Financial Condition
and Results of Operations' and the Consolidated Financial Statements at December
31, 1995 and 1996 and for each of the years in the three year period ended
December 31, 1996 and the related notes which are incorporated by reference
herein.
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1992 1993 1994 1995 1996
----- ----- ----- ----- -----
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales...................................................... $ 659 $ 740 $ 758 $ 901 $ 948
Gross profit................................................... 104(a) 203 243 345 365
Selling, administrative and other expenses..................... 78 73 79 115 90
Restructuring costs(b)......................................... 9 33 -- 30 --
Operating profit (loss)........................................ (1)(a) 80 162 189(c) 268
Total interest expense......................................... 22 21 19 93 61
Income (loss) before extraordinary charge and cumulative effect
of changes in accounting principles......................... (30)(a) 50 100 25(c) 145
Extraordinary charge, net of tax(d)............................ -- -- -- 37 --
Cumulative effect of changes in accounting principles.......... (55) (20) -- -- 7
Net income (loss).............................................. (85)(a) 30 100 (12)(c) 152
Net income per share before cumulative effect of change in
accounting principles (Pro forma in 1995)................... $1.87(e) $3.00
Net income per share........................................... $3.15
Weighted average shares outstanding (Pro forma 1995) (in
thousands)(f)............................................... 48,763 48,469
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents...................................... $ 28 $ 54 $ 60 $ 53 $ 95
Total assets................................................... 784 831 778 864 988
Total debt..................................................... 269 268 247 668 635
Stockholders' equity (deficit)................................. 198 188 192 (167) (2)
OTHER DATA:
Gross profit margin............................................ 15.8% 27.4% 32.1% 38.3% 38.5%
Operating profit margin........................................ N/M 10.8 21.4 21.0 28.3
Depreciation................................................... $ 44 $ 39 $ 39 $ 38 $ 36
Capital expenditures........................................... 19 26 34 65 62
EBITDA(g)...................................................... 43 147 201 249 304
Cash flow from operations...................................... 52 64 174 130 172
Cash flow from investing....................................... (13) (25) (56) (116) (104)
Cash flow from financing....................................... (26) (13) (105) (18) (26)
Quantity of graphite electrodes sold (thousands of metric
tons)(h).................................................... 205 217(i) 196(i) 217(i) 205
- ------------------
N/M: Not meaningful.
(See footnotes on next page)
18
(a) Reduction of domestic inventory quantities in 1992 resulted in liquidation
of certain inventories carried on a 'last in, first out' basis acquired at
lower cost in prior years. This liquidation increased gross profit by $5
million and reduced net loss by $3 million in 1992.
(b) Represents costs recorded in connection with closing or downsizing
operations at certain locations as part of the Company's restructuring and
re-engineering projects. These costs consisted primarily of write-offs of
fixed assets and other shut down costs.
(c) Includes, in 1995, non-recurring charges related to the Recapitalization of
$8 million related to payments for a senior subordinated credit facility
which was available but not used and payments under the Company's Long Term
Incentive Compensation Plan and non-recurring expenses related to the
Initial Offering of $18 million for compensation expense related to
accelerated vesting of performance stock options and restricted matching
stock.
(d) Resulted from early extinguishment of debt in connection with the Redemption
and the Refinancing.
(e) For unaudited pro forma net income per share, historical net income (loss)
has been adjusted assuming that the Recapitalization, the Initial Offering,
the Redemption and the Refinancing had occurred as of January 1, 1994.
Historical net income (loss) per share has been omitted as the historical
capitalization of the Company is not indicative of the Company's current
capital structure.
(f) Reflects Common Stock and Common Stock equivalents outstanding after the
Initial Offering, including Common Stock equivalents calculated in
accordance with the 'treasury stock method,' wherein the net proceeds from
the exercise of Common Stock equivalents are assumed to be used for the
repurchase of shares of Common Stock at the average price for such year.
(g) EBITDA, for this purpose, means operating profit (loss) plus depreciation,
amortization and the portion of restructuring costs applicable to fixed
asset write-offs. The amount of restructuring costs applicable to fixed
asset write-offs for 1993 and 1995 were $28 million and $22 million,
respectively. The Company believes that EBITDA is generally accepted as
providing useful information regarding a company's ability to service and/or
incur debt. EBITDA should not be considered in isolation or as a substitute
for net income, cash flows from continuing operations or other consolidated
income or cash flow data prepared in accordance with generally accepted
accounting principles or as a measure of a company's profitability or
liquidity.
(h) Excludes graphite electrodes sold by EMSA, which aggregated 25,000 metric
tons, 25,000 metric tons, 24,000 metric tons, 27,000 metric tons, and 26,000
metric tons in 1992, 1993, 1994, 1995 and 1996, respectively.
(i) The quantity of graphite electrodes sold in the first quarter of 1994 was
impacted by Customer Buy-Ins during the fouth quarter of 1993 in advance of
price increases effective in January 1994, and the quantity of graphite
electrodes sold in the first quarter of 1995 was impacted by Customer
Buy-Ins in advance of price increases effective in April 1995.
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
In 1995, the Company consummated the Recapitalization, the Initial
Offering, the Redemption and the Refinancing. In 1996, the Secondary Offering
was consummated and the Company acquired 90% of the equity of UCAR Grafit.
Subsequent to December 31, 1996, the Company acquired 70% of the equity of
Carbone Savoie and through a newly-formed 70%-owned subsidiary, UCAR Elektroden,
acquired the graphite electrode business of EKL in Berlin, Germany. In addition,
the Company announced its intention to acquire the outstanding shares of EMSA
held by the Company's joint venture partner in South Africa. The acquisitions of
UCAR Grafit, Carbone Savoie and the graphite electrode business of EKL were
accounted for as purchases. See 'Summary--Growth Strategies and Recent
Initiatives' and 'The Company.' On March 19, 1997, the Senior Bank Facilities
were amended. See'--Liquidity and Capital Resources--Debt Financing and Debt
Reduction.'
In May and July 1994, the Company increased its ownership of its Mexican
business from 79% to substantially 100% at a net cost of $23 million. These
transactions were accounted for as purchases. In 1995, the Company acquired
substantially all of the shares of its Brazilian subsidiary owned by public
shareholders in Brazil. The aggregate purchase price was $52 million, plus
expenses of $3 million. Thereafter, the Company acquired additional shares from
such Brazilian shareholders for $2 million. These acquisitions were accounted
for as purchases. See 'Summary--Growth Strategies and Recent Initiatives' and
'The Company.'
Cost Reduction Initiatives. Beginning in the mid-1980s, the Company
initiated a project to remove excess, high cost capacity. This project was
designed to close the older, highest cost facilities and increase the operating
efficiencies of the remaining facilities. Five locations were closed as a result
of this project (i.e., three separate manufacturing facilities in the Niagara
Falls, New York area, a manufacturing facility in Sweden and a manufacturing
facility in Puerto Rico). As a result of this project, the Company recorded
fixed asset write-offs and severance costs in 1985 and 1987 through 1989.
A second project was initiated in 1991 and continued through 1992 to
re-engineer work processes in manufacturing facilities and offices and to
downsize the global work force. The Company, working with outside consultants,
redesigned work processes to improve the productivity of the work force and
eliminate unnecessary or redundant activities. The Company recorded severance
costs associated with this project of $28 million and $8 million in 1991 and
1992, respectively.
As a result of these projects, the Company developed a strategy to be the
low cost producer in its industry. With the improved productivity and
efficiencies that had been achieved in its manufacturing facilities, the Company
identified another project, which was approved by UCAR's Board of Directors in
1993, to close the Company's highest cost and oldest graphite manufacturing
facilities at that time, which were located in Sheffield, England and Forno
Allione, Italy, and to increase production at lower cost manufacturing
facilities in Europe and North America. The closing of these facilities resulted
in fixed asset write-offs of $28 million and related shut down costs of $5
million in 1993.
As a result primarily of the projects described in the three preceding
paragraphs, the Company reduced its work force by approximately 2,100 employees,
reduced the average manufacturing cycle time for graphite electrode production
by approximately 50% and achieved a one-third reduction in then existing
inventory levels. By the end of 1994, the Company had achieved annual cost
savings of approximately $101 million (as compared to 1990). The Company
achieved additional annual cost savings from these projects aggregating
approximately $15 million by the end of 1996 (as compared to 1994).
In January 1995, as part of the Company's low cost producer strategy,
UCAR's Board of Directors approved the Rationalization 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. The
Rationalization Project was completed in July 1996 and is expected to yield
approximately $23 million in annual cost savings, with approximately $8 million
in savings having been realized in 1995, $20 million having been realized in
1996 and the full $23 million expected to be realized in 1997 (in each case, as
compared to 1994). Capital expenditures
-20-
of $27 million to build the new facilities and $4 million to shut down the old
facilities were pre-funded as part of the Recapitalization. The Company has
written-off fixed assets of approximately $22 million and recorded $8 million of
shut down costs as restructuring costs in 1995 in connection with the
Rationalization Project. In addition, the Technology Improvement Projects are
expected to yield approximately $5 million in additional annual cost savings by
the end of 1997 (as compared to 1994) at an aggregate cost of approximately $7
million.
Currency Matters. The Company sells its products in multiple currencies
but seeks to price its products based on dollar equivalent target prices for
each of its subsidiaries. These target prices are based on evaluations of the
relevant exchange rates, the relationship between all of the target prices and
other factors, if any, which the Company may deem appropriate. Each subsidiary
then seeks to institute price increases to achieve its target price when, as and
if local conditions permit. A subsidiary may rescind a price increase or grant
price discounts if required by local conditions. The impact on net sales of any
price increase in foreign countries can be mitigated or exaggerated by changes
in currency exchange rates. The Company has entered into hedging transactions to
reduce its exposure to changes in currency exchange rates.
While most of the Company's sales are made to customers in markets where
local currencies are readily convertible into dollars, the Company makes sales
to customers in other markets, particularly countries in the former Soviet
Union, Eastern Europe, the Middle East and the Asia Pacific region. When the
Company deems appropriate, the terms of sale to customers in these markets
require payment in dollars or deutsche marks and may additionally require
prepayment or delivery of a bank letter of credit or equivalent security for
payment.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Consolidated Statements of Operations and the increase or decrease
(expressed as a percentage of such item in the comparable prior period) of such
items:
PERCENTAGE
INCREASE
FOR THE YEAR ENDED (DECREASE)
DECEMBER 31, -----------------
----------------------- 1994 TO 1995 TO
1994 1995 1996 1995 1996
----- ----- ----- ------- -------
(DOLLARS IN MILLIONS)
Net sales............................... $758 $901 $948 18.9% 5.2%
Cost of sales........................... 515 556 583 8.0 4.9
----- ----- ----- ------- -------
Gross profit............................ 243 345 365 42.0 5.8
Selling, administrative and other
expenses.............................. 79 115 90 45.6 (21.7)
Restructuring costs..................... -- 30 -- N/M N/M
Operating profit........................ 162 189 268 16.7 41.8
- ------------------
N/M: Not meaningful.
The following table sets forth, for the periods indicated, the percentage
(rounded to the nearest tenth) of net sales represented by certain items in the
Consolidated Statements of Operations:
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1994 1995 1996
----- ----- -----
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 67.9 61.7 61.5
----- ----- -----
Gross profit............................ 32.1 38.3 38.5
Selling, administrative and other
expenses.............................. 10.4 12.8 9.5
Restructuring costs..................... -- 3.3 --
Operating profit........................ 21.4 21.0 28.3
1996 Compared to 1995. Net sales in 1996 were $948 million, an increase of
5% from $901 million in 1995. This increase was led by the Company's graphite
specialties and carbon specialties businesses, which both had net sales
increases of 13% in 1996 as compared to 1995. The average selling prices (in
dollars and net of changes in currency exchange rates) for products of these
businesses increased approximately 8% in 1996 as
-21-
compared to 1995. The carbon specialties business had increased volume in carbon
refractory products, which are sold primarily to the steel industry. The
graphite specialties business had increased volume in 'superfine grain'
products, which are used in the semiconductor industry, and increased volume in
graphite cathodes, which are used in the aluminum industry. Net sales of the
Company's core graphite electrodes business, which accounted for 73% of total
net sales in 1996, increased approximately 3% to $696 million in 1996 as
compared to $675 million in 1995. The average selling price (in dollars and net
of changes in currency exchange rates) of graphite electrodes sold increased
approximately 6% to $3,185 per metric ton in 1996 as compared to $3,000 per
metric ton in 1995. The volume of graphite electrodes sold in 1996 declined by
approximately 5% in 1996 as compared to 1995. Graphite electrode sales volume in
Western Europe declined 18% in 1996 as compared to 1995 as a result of lower
economic activity as members of the European Union continued to work toward a
unified monetary system. The Company believes that demand for graphite
electrodes will increase if economic conditions in Western Europe improve and as
announced new electric arc furnaces achieve typical operating rates. Net sales
for the Company's products outside of the United States amounted to $642
million, or approximately 68% of total net sales, in 1996.
Gross profit in 1996 was $365 million, an increase of $20 million, or 6%,
from gross profit of $345 million in 1995. Price increases on all products sold
together with cost savings offset the decline in graphite electrode sales volume
and allowed for an increase in gross margin to 38.5% in 1996 as compared to
38.3% in 1995.
Operating profit in 1996 was $268 million (28% of net sales), an increase
of $79 million, or 42%, from operating profit of $189 million (21% of net sales)
in 1995. Excluding restructuring costs of $30 million, non-recurring expense of
$6 million associated with a senior subordinated credit facility available but
not used in connection with the Recapitalization, $18 million of non-recurring
compensation expense included in selling, administrative and other expenses as a
result of accelerated vesting of performance stock options and restricted
matching stock in connection with the Initial Offering and $2 million of other
expenses due to payments under the Company's Long Term Incentive Compensation
Plan accelerated as a result of the Recapitalization, operating profit in 1995
would have been $245 million (27% of net sales).
Selling, administrative and other expenses were $90 million in 1996, a
decrease of $25 million, or 22%, from $115 million in 1995. Selling,
administrative and other expenses in 1995 included $18 million in non-recurring
compensation expense associated with the accelerated vesting of performance
stock options and restricted matching stock in connection with the Initial
Offering and $4 million associated with scheduled vesting of performance stock
options.
Restructuring costs of $30 million were incurred in 1995 in connection with
the Rationalization Project. No restructuring costs were incurred in 1996.
Other (income) expense (net) was income of $1 million in 1996 as compared
to expense of $3 million in 1995. The change resulted primarily from a $14
million decrease in interest income (primarily due to a reduction in short-term
investments by the Company's Brazilian subsidiary), a $9 million reduction in
expense from foreign currency adjustments (including reduced translation losses
from Brazilian operations and from dollar-denominated debt of the Company's
foreign subsidiaries) and a non-recurring expense of $7 million associated with
bank fees due to the Recapitalization which were incurred in 1995 but not in
1996.
Interest expense decreased to $61 million in 1996 from $93 million in 1995.
In 1996, the average outstanding total debt balance was $643 million and the
average annual interest rate was 9.4% as compared to an average outstanding
total debt balance of $820 million and an average annual interest rate of 11.5%
in 1995.
Provision for income taxes was $68 million in 1996 as compared to $74
million in 1995. In 1995, income tax expense was higher than the amount computed
by applying the United States federal income tax rate primarily due to
non-recurring taxes of approximately $37 million associated with the
Recapitalization.
Minority stockholders' share of income of the Company's Brazilian
subsidiary decreased to $1 million in 1996 from $4 million in 1995 due to an
increase in the Company's ownership of that subsidiary. Substantially all of the
minority interest of the Brazilian subsidiary was purchased by the Company in
1995. The Company's share of net income of EMSA remained stable at $7 million in
1996 and 1995.
-22-
1995 Compared to 1994. Net sales for 1995 were $901 million, an increase
of $143 million, or 19%, from net sales of $758 million in 1994. This increase
was largely the result of the improved performance of the Company's graphite
electrode business. This increase was driven primarily by increases in the
volume and price of graphite electrodes sold. An 11% increase in the volume of
graphite electrodes sold brought volume to 217,000 metric tons in 1995 from
196,000 metric tons in 1994. Substantially all of the volume increase resulted
from increased sales in Eastern Europe, the Asia Pacific region and the Middle
East. This volume increase also reflected the negative impact on volume in 1994
from Customer Buy-Ins in late 1993 in anticipation of announced price increases
which became effective on January 1, 1994. The average selling price per metric
ton (in dollars and net of changes in currency exchange rates) of graphite
electrodes sold increased 9% in 1995 as compared to 1994. Net sales of the
Company's other products were $224 million, an increase of $36 million, or 19%,
from net sales of $188 million in 1994. This increase was a result of higher
demand and increased prices for these products. Net sales for the Company's
products outside of the United States amounted to $615 million, or 68% of total
net sales, in 1995.
Gross profit in 1995 was $345 million, an increase of $102 million, or 42%,
from gross profit of $243 million in 1994. Price and volume increases of
graphite electrodes sold, as well as continued improvement in manufacturing
efficiency, helped to increase gross margin for 1995 to 38% as compared to 32%
for 1994.
Operating profit in 1995 was $189 million (21% of net sales), an increase
of $27 million, or 17%, from operating profit of $162 million (21% of net sales)
in 1994. On a pro forma basis, as if the Recapitalization, the Initial Offering,
the Redemption and the Refinancing had occurred on January 1, 1994, operating
profit in 1995 would have been $214 million (24% of net sales and a 35% increase
from 1994 operating profit, on such pro forma basis, of $158 million), excluding
$18 million of non-recurring compensation expense due to the accelerated vesting
of performance options and restricted matching stock in connection with the
Initial Offering and $8 million of non-recurring costs related to the
Recapitalization.
Selling, administrative and other expenses increased 46% to $115 million in
1995 from $79 million in 1994. This increase was due primarily to $18 million in
non-recurring compensation expense associated with the accelerated vesting of
performance stock options and restricted matching stock in connection with the
Initial Offering and $4 million associated with scheduled vesting of performance
stock options, a $4 million increase in compensation expense for other variable
compensation plans and a $4 million increase in other variable costs resulting
from higher sales.
Restructuring costs were $30 million in 1995 as compared to none in 1994.
The restructuring costs consisted of fixed asset write-offs of $22 million and
$8 million of related shutdown costs in connection with the Rationalization
Project.
Other (income) expense (net) was expense of $3 million in 1995 as compared
to income of $5 million in 1994. The change was principally the result of a $6
million expense associated with a senior subordinated credit facility provided,
but not used, in connection with the Recapitalization and a $4 million
translation loss on dollar-denominated debt of the Company's foreign
subsidiaries.
Interest expense increased to $93 million in 1995 from $19 million in 1994.
In 1995, the average outstanding total debt balance was $820 million and the
average annual interest rate was 11.5% as compared to an average outstanding
total debt balance of $254 million and an average annual interest rate of 7.4%
in 1994. The increases were primarily the result of the Recapitalization.
Provision for income taxes was $74 million in 1995 as compared to $37
million in 1994. The increase in income tax expense was primarily due to
non-recurring taxes of approximately $37 million associated with the
Recapitalization as a result of the repatriation to the United States of funds
borrowed by foreign subsidiaries, partially offset by the effect of lower
pre-tax income.
Minority stockholders' share of income of the Company's Brazilian and
Mexican subsidiaries decreased to $4 million in 1995 from $10 million in 1994
due to an increase in the Company's ownership of those subsidiaries.
Substantially all of the minority interest of the Mexican subsidiary was
purchased by the Company
-23-
in May and July 1994 and substantially all of the minority interest of the
Brazilian subsidiary was purchased by the Company in 1995. The Company's share
of net income of EMSA increased to $7 million in 1995 from $4 million in 1994
due to an increase in EMSA's earnings.
The Company recorded an extraordinary charge of $37 million related to
early extinguishment of debt (net of tax benefit of $20 million) resulting from
the prepayment in connection with the Recapitalization of $175 million of senior
notes issued by UCAR in 1994, the Redemption and the Refinancing. The
extraordinary charge consisted of a premium of $18 million paid on the
redemption of the Subordinated Notes and the write-off of deferred debt issuance
costs of $39 million.
Net loss for 1995 totaled $12 million as compared with net income of $100
million in 1994. On a pro forma basis, as if the Recapitalization, the Initial
Offering, the Redemption and the Refinancing had occurred on January 1, 1995,
net income for 1995 would have been $91 million (after giving effect to $20
million in after tax restructuring costs relating to the Rationalization
Project), an increase of 52% from net income, on such pro forma basis, of $60
million in 1994.
The following table sets forth a summary of the results of operations for
1995, as adjusted for certain non-recurring expenses, taxes and costs:
OPERATING NET
PROFIT INCOME
--------- ------
(DOLLARS IN
MILLIONS,
EXCEPT PER SHARE
DATA)
As reported in the Consolidated Financial Statements............................... $ 189 $ (12)
Non-recurring expenses, taxes and costs:
Compensation expense due to accelerated vesting of performance stock options and
restricted matching stock in connection with the Initial Offering............. 18 12
Senior subordinated credit facility expense and Long Term Incentive Compensation
Plan payments in connection with the Recapitalization......................... 8 5
Extraordinary charge for early extinguishment of debt............................ -- 37
Taxes associated with the Recapitalization....................................... -- 37
Pro forma interest adjustment to give effect to the Recapitalization, the Initial
Offering, the Redemption and the Refinancing as if they occurred on January 1,
1995.......................................................................... (1) 12
--------- ------
Pro forma operating profit/net income.............................................. $ 214 $ 91
--------- ------
--------- ------
Pro forma net income per share..................................................... $1.87
------
------
EFFECTS OF INFLATION
In general, the Company's cost of sales is affected by the inflation in
each country in which it has a manufacturing facility. During the past three
years, the effects of inflation in the United States and foreign countries
(except for hyperinflationary countries) have been offset by a combination of
improved operating efficiency, improved pricing and permanent, on-going cost
savings and, accordingly, have not been material to the Company. The Company
maintains operations in Brazil and Mexico, countries which historically have had
hyperinflationary economies. Through December 31, 1993, the financial statements
of these foreign entities have been remeasured as if the respective functional
currencies of the Brazilian and Mexican economic environments were the United
States dollar. Accordingly, translation gains and losses were included in the
Consolidated Statements of Operations. Foreign currency gains on debt and prior
period tax liabilities were included in interest expense and provision for
income taxes, respectively. Effective January 1, 1994, because of significant
declines in the rate of inflation in Mexico, the Company changed its functional
currency in Mexico to the Mexican peso. The reporting currency amounts at the
date of the change were translated into the local currency at the then current
exchange rates, and those amounts became the new functional currency accounting
basis. Hyperinflation
-24-
has not had a material effect on the Company's results of operations because the
Company has been able to mitigate the effects of hyperinflation by increasing
prices generally in line with inflation as well as through improved efficiency
and cost savings.
The cost of petroleum coke, a principal raw material used by the Company,
and natural gas, which is used by the Company in its electrode and graphite
specialties baking operations, may fluctuate widely for various reasons,
including fuel shortages and cold weather. Changes in such costs have not been
material to the Company during the past three years.
EFFECTS OF CHANGES IN CURRENCY EXCHANGE RATES
The Company produces and sells its products in multiple currencies. In
general, the Company's results of operations are affected by changes in currency
exchange rates. Although such has not been the case in the past, such changes in
the future could have a material effect on the Company's results of operations.
The Company attempts to mitigate the effects of exchange rate changes by
adjusting sales prices, in local currency (to the extent permitted by local
market conditions), to maintain a dollar equivalent target price. In addition,
the Company engages in hedging activities and uses various off-balance sheet
financial instruments to manage exposure to general economic and specific
financial market risks caused by currency exchange rate changes. The amount of
forward exchange contracts used by the Company to minimize these risks was $350
million at December 31, 1996, $269 million at December 31, 1995 and $80 million
at December 31, 1994.
In connection with the Recapitalization, certain of the Company's foreign
subsidiaries borrowed $343 million of dollar-denominated debt. In November 1995,
the Company repatriated dollar-denominated debt of its Mexican subsidiary by
replacing it with debt of Global. As a result of such repatriation and other
principal payments, $189 million of dollar-denominated debt of the Company's
foreign subsidiaries was outstanding at December 31, 1996. Changes in the
exchange rates between the dollar and the currencies in the countries in which these subsidiariesthose operations are located resultconducted. These laws
and regulations primarily relate to pollution prevention and the control of the
impacts of industrial activities on the quality of the air, water and soil.
Regulated activities include, among other things: use of hazardous substances;
packaging, labeling and transportation of products; management and disposal of
toxic wastes; discharge of industrial and sanitary wastewater; and emissions to
the air.
We believe that we are currently in material compliance with the federal,
state, local and foreign currency gainsenvironmental laws and lossesregulations to which we are
subject. We have received and continue periodically to receive notices from the
U.S. Environmental Protection Agency or state environmental protection agencies,
as well as claims from others, alleging that we are reporteda potentially responsible
party (a "PRP") under Superfund and similar state laws for past and future
remediation costs at hazardous substance disposal sites. Although Superfund
liability is joint and several, in other (income) expense (net) ingeneral, final allocation of responsibility
at sites where there are multiple PRPs is made based on each PRP's relative
contribution of hazardous substances to the Consolidated Statements of
Operations. While changes in currency exchange ratessite. Based on information currently
available to us, we believe that any potential liability we may have not materially
affected the Company in the past, there can be no assurance that such changesas a PRP
will not have a material adverse effect on us.
We have sold or closed a number of facilities that had solid waste
landfills. In the Company at somecase of sold facilities, we have retained ownership of the
landfills. We have closed these landfills, and we believe that we have done so
in material compliance with applicable laws and regulations. We continue to
monitor these landfills pursuant to applicable laws and regulations. To date,
the costs associated with the landfills have not been, and we do not anticipate
that future date. In
November 1995,costs will be, material to us.
We establish accruals for environmental liabilities where it is probable
that a liability has been incurred and the Company's foreign subsidiaries with dollar-denominated debt
entered into forward foreign currency contracts to protect against exchange rate
changes. The amount of the liability can be
reasonably estimated. We adjust accruals as new remediation and other
commitments are made and as information becomes available which changes
estimates previously made.
Estimates of future costs of environmental protection are necessarily
imprecise due to numerous uncertainties, including the impact of new laws and
regulations, the availability and application of new and diverse technologies,
the extent of insurance coverage, the identification of new hazardous substance
disposal sites at which we may be a PRP and, in the case of sites subject to
Superfund and similar state laws, the ultimate allocation of costs among PRPs
and the final determination of remedial requirements. Subject to the inherent
imprecision in estimating such contracts was $169 millionfuture costs, but taking into consideration our
experience to date regarding environmental matters of a similar nature and facts
currently known, we believe that costs and capital expenditures (in each case,
before adjustment for inflation) for environmental protection will not increase
materially over the next several years.
EMPLOYEES
At March 31, 2001, we had 4,217 employees, of which 1,947 were in Europe
(including Russia), 790 were in Mexico and Brazil, 376 were in South Africa, 6
were in Canada, 1,092 were in the U.S. and 6 were in the Asia Pacific region. At
March 31, 2001, we had 2,869 hourly employees. We had 4% fewer employees at
March 31, 2001 than at March 31, 2000, and the shutdown of graphite electrode
manufacturing operations at two of our facilities in the U.S. is expected to
reduce the number of our employees by another 4%.
72
At December 31, 1996 and
$198 million2000, about 63% of our worldwide employees were covered by
collective bargaining or similar agreements, which expire at various times in
each of the next several years. At December 31, 1995. Premiums2000, about 1,696 employees, or
40% of our employees, were covered by agreements, which expire, or are subject
to renegotiation, at various times during 2001. We believe that our
relationships with our unions are satisfactory and that we will be able to renew
or extend our collective bargaining or similar agreements on reasonable terms as
they expire. We cannot assure you, however, that renewed or extended agreements
will be reached without a work stoppage or strike or will be reached on terms
satisfactory to us. A prolonged work stoppage at any one of our manufacturing
facilities could have a material adverse effect on us.
Excluding our subsidiaries prior to the contracts are amortized overtime when we acquired them, we have
not had any material work stoppages or strikes during the lifepast decade.
INSURANCE
We obtain insurance against civil liabilities relating to personal injuries
to third parties, for loss of the contracts, resulting in $4 million in charges which have been
amortizedor damage to other (income) expense (net) over 1995property and 1996. The Company
believes that the repatriation of the dollar-denominated debt from its Mexican
subsidiary and such contracts substantially mitigate the Company's exposure to
exchange rate changes related to such borrowings.
During December 1994 and in 1995, the Mexican peso devalued substantially
against the dollar. As a result of this devaluation, the stockholders' equity of
the Company's Mexican subsidiary was reduced by $14 million and $5 million
during December 1994 and in 1995, respectively. This reduction had no impact on
the Company's results of operations because translation gains and losses are
reported in the cumulative foreign currency translation adjustment component of
stockholders' equity. The selling price of graphite electrodes sold in Mexican
pesos increased by 215% from December 1994 through December 1995, partially
offsetting the significant devaluation of the Mexican peso against the dollar.
Approximately 38% of the Mexican subsidiary's sales are made outside Mexico in
dollars. The Company's dollar earnings from such sales benefitfor environmental
matters to the extent that local costsit is currently available and provides coverage that
we believe is appropriate upon terms and conditions and for premiums that we
consider fair and reasonable. We believe that we have insurance providing
coverage for claims and in amounts that we believe appropriate as described
above. We cannot assure you, however, that we will not incur losses beyond the
limits of or outside the coverage of our insurance. We currently believe that
recovery under our insurance, if any, will not materially offset liabilities
that have or may become lower in dollar terms.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds have consisted principally of invested
capital, operating cash flow and debt financing from affiliates, banks and
institutional investors. The Company's uses of those funds (other than for
operations) have consisted principally of debt reduction, capital expenditures,
distributions to stockholders (including the redemption and repurchases of
common equity), acquisition of controlling interests in new companies or
businesses and acquisition of minority stockholders' shares of consolidated
subsidiaries.
-25-
Acquisitions have been and are expected to be, and repurchases under UCAR's
stock repurchase program are expected to be, financed from existing cash
balances, cash flow from operations, short-term borrowings and borrowings under
the revolving credit facility, except that UCAR intends to finance the
Blackstone Share Repurchase primarily from borrowings under its revolving
credit facility.
Debt Financing and Debt Reduction. Upon consummation of the
Recapitalization, the Company established the Recapitalization Bank Facilities
which provided for borrowings of up to $685 million, of which $585 million was
useddue in connection with the Recapitalization. On October 19, 1995, the Company
refinanced the Recapitalization Bank Facilities with the Senior Bank Facilities
at more favorable interest rates and with more favorable covenants. After the
Refinancing, the Senior Bank Facilities provided for borrowings of up to $620
million, of which $520 million was used in connection with the Refinancing and
$100 million was available on a revolving credit basis for general corporate
purposes. In 1995 and 1996, the Company voluntarily repaid an aggregate of $161
million and $55 million, respectively, of indebtedness under the
Recapitalization Bank Facilities and the Senior Bank Facilities, which
repayments were funded from available cash and cash flow from operations.
Accordingly, the Company's next required installment payments for the tranche A
facility and the tranche B term facility under the Senior Bank Facilities occur
during 1998 and 2002, respectively. In connection with the Recapitalization, the
Company, through Global, issued $375 million aggregate principal amount of
Subordinated Notes, of which $175 million aggregate principal amount were
redeemed with proceeds from the Initial Offering.
At December 31, 1996, the Company had total debt of $635 million and a
stockholders' deficit of $2 million as compared to $668 million and $167
million, respectively, at December 31, 1995. At December 31, 1996, cash and cash
equivalents were $95 million as compared to $53 million at December 31, 1995. On
March 19, 1997, the Senior Bank Facilities were amended to reduce the interest
rates on amounts outstanding under the Senior Bank Facilities, to increase the
amount available under the revolving credit facility to $250 million and to
change the covenants to allow for more flexibility in uses of free cash flow for
acquisitions, capital expenditures and stock repurchases.
Although no assurance can be given that such will be the case, the Company
believes that cash flow from operations combined with its revolving credit
facility and existing cash balances will be adequate to meet debt service
requirements, fund continued capital expenditures, allow for certain growth
opportunities and meet working capital and general corporate needs. The
acquisition of the remaining shares of EMSA will be financed with borrowings
under the revolving credit facility.
Inventory Levels and Working Capital. As a result of efficiencies achieved
pursuant to the Company's restructuring and re-engineering projects, there has
been improvement in managing inventory levels with respect to finished products,
work in process, raw materials and supplies for a given level of forecasted
sales. 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 in advance of announced price increases, changes in
scheduled production by the Company to meet anticipated Customer Buy-Ins and
other factors.
The Company's working capital increased to $234 million at December 31,
1996 from $175 million at December 31, 1995, primarily as a result of a $40
million increase in inventory levels due principally to weaker than expected
graphite electrode sales volume in Western Europe and an $11 million increase
resulting from a change in accounting for LIFO inventories in the United States.
Cash and cash equivalents were $42 million higher at December 31, 1996 than at
December 31, 1995. Cash and cash equivalents increased due to cash flow from
operations in excess of cash used for financing and investing activities. In
addition, short-term debt increased by $22 million primarily due to the
acquisition of UCAR Grafit.
Capital Expenditures. Capital expenditures aggregated $62 million
(including $4 million for the Rationalization Project) in 1996. The Company
expects capital expenditures in 1997 to total approximately $75 million to $80
million (including approximately $11 million for the Focused Factory Project and
the Technology Improvement Projects and $15 million for capital improvements
relating to facilities of the Acquired Companies). In November 1996, UCAR's
Board of Directors approved a project to modernize the Company's manufacturing
facility in Caserta, Italy in order to reduce operating costs, improve product
quality, improve
-26-
working conditions and reduce emissions at a cost of approximately $21 million.
Capital expenditures aggregated $65 million and $34 million in 1995 and 1994,
respectively. Except for the Focused Factory Project, most of the Company's
capital expenditures have been, and are expected to be, made to maintain
existing facilities and equipment, achieve cost savings and improve operating
efficiency.
Capital expenditures for the Rationalization Project of $27 million to
build new facilities and $4 million to pay costs to shut down old facilities
were pre-funded under the Recapitalization Bank Facilities as part of the
Recapitalization. During 1995, in connection with the Rationalization Project,
the Company wrote-off fixed assets of $22 million and recorded $8 million of
facility closing expenses and environmental clean-up costs.
Cash Distributions and Restrictions on Dividendsantitrust investigations,
lawsuits or Distributions. The
Company made cash distributions to Union Carbide and Mitsubishi aggregating $84
million on September 30, 1994 and $10 million on January 20, 1995. On January
26, 1995, in connection with the Recapitalization, the Company repurchased and
cancelled all of the common equity then held by Mitsubishi for $406 million and
paid to Union Carbide a dividend of $347 million. In March 1995, Union Carbide
and Mitsubishi refunded approximately $7 million of the $10 million distributed
on January 20, 1995 as required by the Recapitalization Agreement.
Under the Senior Bank Facilities as amended on March 19, 1997, Global and
UCAR are generally permitted to pay dividends to their respective stockholders
and to repurchase Common Stock only in an amount up to the greater of $15
million in any twelve-month period or a cumulative amount subsequent to March
19, 1997 equal to a specified percentage based on certain financial tests of
adjusted cumulative consolidated net income subsequent to December 31, 1996. The
Subordinated Note Indenture also limits the payment of dividends by Global to
UCAR.
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 new method of accounting resulted in charging lower inventory costs to cost
of goods sold during 1996 which reduced cost of goods sold by $4 million (and
increased net income by $2 million).
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 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 has
elected to continue the accounting 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.
COSTS RELATING TO PROTECTION OF THE ENVIRONMENT
The Company has been and is subject to increasingly stringent environmental
protection laws and regulations. In addition, the Company has an on-going
commitment to rigorous internal environmental protection standards. Expenses
relating to environmental protection were approximately $10 million, $15 million
and $15 million in 1994, 1995 and 1996, respectively. Capital expenditures
relating to environmental protection were approximately $5 million, $6 million
and $14 million in 1994, 1995 and 1996, respectively.
-27-claims.
73
MANAGEMENT
The following table sets forth certain information with respect to theconcerning our executive
officers and directors, including their ages as of UCAR.March 31, 2001.
NAME AGE*AGE POSITION
- --------------------------------------------------- ---- -------------------------------------------------------- --------
Robert P. Krass.................................... 60Gilbert E. Playford....................... 54 Chairman of the Board, President and Chief Executive Officer Robertand
President
Petrus J. Hart..................................... 60Barnard......................... 51 Executive Vice President, Global Electrode Supply
Chain
W. David Cate............................. 54 Executive Vice President, Strategic Alliances and
General Manager (NorthBusiness Development
Corrado F. De Gasperis.................... 35 Vice President, Chief Financial Officer and South
America)
Peter B. Mancino................................... 54Chief
Information Officer
Scott C. Mason............................ 42 Executive Vice President, Advanced Energy
Technology Division
Karen G. Narwold.......................... 41 Vice President, General Counsel and Secretary
Maurice Marcellin.................................. 62Craig S. Shular........................... 48 Executive Vice President, and General Manager (Europe and South
Africa)
William P. Wiemels................................. 52 Vice President, Chief Financial Officer and Treasurer
Fred C. Wolf....................................... 52 Vice President, Administration and Strategic ProjectsGraphite Power Systems
Division
R. Eugene Cartledge................................ 67Cartledge....................... 71 Director
Mary B. Cranston.......................... 53 Director
John R. Hall....................................... 64Hall.............................. 68 Director
Glenn H. Hutchins.................................. 41Thomas Marshall........................... 72 Director
Robert D. Kennedy.................................. 64 Director
Howard A. Lipson................................... 33 Director
Peter G. Peterson.................................. 70 Director
Stephen A. Schwarzman.............................. 50Michael C. Nahl........................... 58 Director
- ------------------
* As of February 28, 1997
The business experience of each ofEXECUTIVE OFFICERS
GILBERT E. PLAYFORD joined UCAR as President and Chief Executive Officer in
June 1998. In September 1999, Mr. Playford also became the executive officers and directors is
set forth below. Following the Offering, Messrs. Hutchins, Lipson, Peterson and
Schwarzman will resign as directors.
Robert P. Krass was elected director and Chairman of the
Board of UCAR in
connection withBoard. From January 1996 to June 1998, he was the Recapitalization. Mr. Krass joined Union Carbide in 1963 and
held various sales and management positions in the United States and Europe,
including Director of Marketing, Europe, of the Carbon Products Division and
Managing Director of the Division's business in the United Kingdom. He was Vice
President Marketing, of the Electrode Systems Division from 1983 to 1986. In
1987, Mr. Krass became President of the Carbon Products Division and Vice
President of Union Carbide. He has been President of the Company since 1989 and Chief Executive
Officer of LionOre Mining International Ltd., a Toronto Stock Exchange company
which he founded and which is engaged in mining nickel in Botswana and
nickel/gold in Australia. Prior to founding LionOre Mining International Ltd.,
of which he continues to serve as a director and non-executive Chairman,
Mr. Playford spent his career with Union Carbide Corporation. We are the
Company sincesuccessor to the Carbon Products Division of Union Carbide. Mr. Playford began
his career in 1972 with Union Carbide in Canada. In 1989, after several years in
Europe and Canada, he was appointed Corporate Vice President, Strategic Planning
of Union Carbide. In 1990, he became Vice President, Corporate Holdings of Union
Carbide. He assumed the additional responsibility of President and Chief
Executive Officer of Union Carbide's Canadian subsidiary in 1991. Mr. Krass isPlayford
was named Vice President, Treasurer and Principal Financial Officer of Union
Carbide in 1992. In his capacity as Principal Financial Officer of Union
Carbide, he also served as a membernominee of the
Nominating Committee ofUnion Carbide on UCAR's Board of
Directors.
Robert J. Hart joinedDirectors from 1992 until our leveraged equity recapitalization in
January 1995. He took on additional duties as Vice President for Union Carbide's
latex and paint business in 1993. Mr. Playford left Union Carbide in
1961 andJanuary 1996.
PETRUS J. BARNARD became Executive Vice President, Global Electrode Supply
Chain in February 2000. Mr. Barnard joined our South African subsidiary in 1972.
He subsequently held various manufacturingmanagement positions in our South African
subsidiary and marketing positions in the Carbon Products Division of Union
74
Carbide in the United States,U.S. He became Director of Operations for Europe and South America. In 1986, he returned from South America to the United
States as Vice President andAfrica
in 1994, General Manager of the Carbon Products Division,
firstGraphite Electrode Business for Europe and South
Africa in 1995, Vice President, Electrodes for the Pan AmericanAmericas in 1997 and
South African regions and later worldwide. He has
beenDirector, Electrodes for the Americas in 1998.
W. DAVID CATE became Executive Vice President, Strategic Alliances and
General Manager, North and South America, of the Company
since 1991.
Peter B. Mancino joined the Law Department of Union CarbideBusiness Development in 1975 and
became Division Counsel of the Industrial Gases and Carbon Products Divisions in
1980. In 1989, he became General Counsel of the Company.February 2000. Mr. Mancino has been a
Vice President and the Secretary of the Company since 1991.
Maurice MarcellinCate joined Union Carbide in 19621969 and
held various positions
in the Carbon Products Division in Europe. He has been Vice President and
General Manager, Europe and South Africa, of the Company since 1991.
William P. Wiemels joined Union Carbide in 1967 and held various technical,
sales and marketing positions in the Carbon Products Division in the United
States and Europe. He became Director of Marketing in Europe in 1986 and
Director of Technology of the Company in 1989. Mr. Wiemels was Vice President,
U.S.A. Operations,
-28-
of the Company from 1991 to 1994 and has been Vice President, Chief Financial
Officer and Treasurer of the Company since 1994.
Fred C. Wolf joined Union Carbide in 1967 and held various financialmanufacturing and management positions in the Carbon Products
Division. He became General Manager for Graphite Specialties and Flexible
Graphite in 1991, General Manager for North America in 1994, Vice President,
Electrodes for Europe and South Africa, in 1997 and Director, Pipeline
Management in 1998.
CORRADO F. DE GASPERIS became Chief Financial Officer in June 2001 in
addition to his duties as Vice President and Chief Information Officer, which he
assumed in February 2000. He served as Controller from June 1998 to
February 2000. From 1987 through June 1998, he was with KPMG LLP, most recently
as a Senior Assurance Manager in the Manufacturing, Retail and Distribution
Practice. KPMG had announced his admittance into their partnership effective
July 1, 1998.
SCOTT C. MASON became Executive Vice President, Advanced Energy Technology
Division until 1979.in March 2001. He served as Chief Financial Officer and Vice President
of Graftech and our Director of Mergers & Acquisitions from April 2000 to
March 2001. Prior to joining us, Mr. Mason was Vice President-Supply Chain
Logistics for Union Carbide. From 19791996 to 1985,1999, Mr. Mason served as Director of
Operations and then as Business Director for the Unipol Polymers Business of
Union Carbide. Mr. Mason served from 1981 to 1996 in various financial, sales
and marketing, operations and mergers and acquisition management positions at
Union Carbide. He began his career in 1981 in the Chemicals and Plastics
Division of Union Carbide.
KAREN G. NARWOLD became Vice President, General Counsel and Secretary in
September 1999. She joined our Law Department in July 1990 and served as
Assistant General Counsel from June 1995 to January 1999 and Deputy General
Counsel from January 1999 to September 1999. She was an associate with
Cummings & Lockwood from 1986 to 1990.
CRAIG S. SHULAR became Executive Vice President, Graphite Power Systems
Division in June 2001. He served as Vice President and Chief Financial Officer
from January 1999, with the additional duties of Executive Vice President,
Electrode Sales and Marketing from February 2000. From 1976 through 1998, he
held various finance and businessauditing positions in the Industrial Gases and
Engineering Products and Processes Divisions. He returned tovarious divisions of Union
Carbide, including the Carbon Products Division in 1985 as Controller and wasfrom 1976 to 1979.
DIRECTORS
R. EUGENE CARTLEDGE became a Vice President of the Division from
1986 to 1989. He has been Vice President, Administration and Strategic Projects,
of the Company since 1990.
R. Eugene Cartledge was elected director of UCAR in February 1996. From 1986 until his
retirement in 1994, he was the Chairman of the Board and Chief Executive Officer
of Union Camp Corporation, where he had served in various
sales and management capacities since 1956.Corporation. Mr. Cartledge isretired as Chairman of the Board of
Savannah Foods and& Industries Inc. andin December 1997. He is a director of Union Camp
Corporation, Chase Brass
Industries, Inc., Sun Company, Inc., Delta Air Lines, Inc., and Blount, Inc.Formica
Corporation. Mr. Cartledge is Chairman of the Nominating Committee and a member
of the AuditOrganization, Compensation and Pension Committee of UCAR's Board of
Directors.
John R. Hall was electedMARY B. CRANSTON became a director in January 2000. Ms. Cranston is a
partner and has served since 1999 as Chairperson of Pillsbury Winthrop LLP, an
international law firm. Ms. Cranston is based in San Francisco, California.
Ms. Cranston has been practicing complex litigation, including antitrust,
telecommunications and securities litigation, with Pillsbury Winthrop LLP since
1975. She is a director of UCARthe San Francisco Chamber of Commerce and the Bay
Area Council, and a trustee of the San Francisco Ballet and Stanford University.
Ms. Cranston is a member of the Audit and Finance Committee and the Nominating
Committee of UCAR's Board of Directors.
JOHN R. HALL became a director in November 1995. Since July 1997, Mr. Hall
has been the non-employee Chairman of Arch Coal, Inc. He retired as Chairman,
effective January 31, 1997, and as
75
Chief Executive Officer, effective October 1, 1996, of Ashland Inc., positions
which positions he had held since 1981. Mr. Hall served in various engineering and
managerial capacities at Ashland Inc. since 1957. Mr. Hall is a director of BancBank
One Corporation, Canada Life Assurance Company, CSX Corporation, Humana Inc. and,
Reynolds Metals Company.Company, Arch Coal Inc. and USEC Inc. Mr. Hall is Chairman of
the Organization, Compensation and Pension Committee of UCAR's Board of
Directors.
THOMAS MARSHALL became a director in June 1998. Mr. Marshall retired in 1995
as Chairman of the Board and Chief Executive Officer of Aristech Chemical
Corporation, a spinoff of USX Corporation, which positions he had held since
1986. Mr. Marshall had previously served as President of the U.S. Diversified
Group, a unit covering 18 divisions and subsidiaries, including Manufacturing,
Fabricating and Chemicals, of USX Corporation. Mr. Marshall serves on the Board
of the National Flag Foundation. He is a trustee of the University of Pittsburgh
and Chairman of the Thomas Marshall Foundation. Mr. Marshall is a member of the
Audit and Finance Committee and the Organization, Compensation and Pension
Committee of UCAR's Board of Directors.
MICHAEL C. NAHL became a director in January 1999. Mr. Nahl is Senior Vice
President and Chief Financial Officer of Albany International Corp, a
manufacturer of paper machine clothing, which are the belts of fabric that carry
paper stock through the paper production process. He joined Albany International
Corp. in 1981 as Group Vice President, Corporate and was appointed to his
present position in 1983. He is a member of the Chase Manhattan Corporation
Northeast Regional Advisory Board. Mr. Nahl is Chairman of the Audit and Finance
Committee and a member of the AuditNominating Committee of UCAR's Board of Directors.
Glenn H. Hutchins was elected director of UCAR in connection with the
Recapitalization. He is a member of Blackstone Group Holdings L.L.C. Mr.
Hutchins joined The Blackstone Group L.P. in September 1994. Mr. Hutchins was a
Managing Director of Thomas H. Lee Co. from 1987 until 1994 and, while on leave
from Thomas H. Lee Co. during parts of 1993 and 1994, was a Special Advisor in
the White House. Mr. Hutchins is a director of Haynes International Inc. Mr.
Hutchins is a member of the Nominating and Organization and Compensation
Committees of UCAR's Board of Directors.
Robert D. Kennedy was elected director of the Company in June 1990. He
joined Union Carbide in 1955 and held various marketing and management positions
in the United States and Europe. He was Senior Vice President of Union Carbide
from 1981 to 1985. In 1985, Mr. Kennedy was elected a director and President of
Union Carbide. In 1986, he was elected Chief Executive Officer and Chairman of
the Board of Union Carbide. Mr. Kennedy retired as Chief Executive Officer and
President of Union Carbide in April 1995 and as Chairman of the Board (but not
as a director) of Union Carbide in December 1995. Mr. Kennedy is also a director
of Union Camp Corporation, Sun Company, Inc., Birmingham Steel Corp., KMart
Corp. and General Signal Corp. Mr. Kennedy is Chairman of the Audit Committee
and a member of the Organization and Compensation Committee of UCAR's Board of
Directors.
Howard A. Lipson was elected director of UCAR in connection with the
Recapitalization. Mr. Lipson is a member of Blackstone Group Holdings L.L.C. Mr.
Lipson was a Managing Director from 1994 to 1995, was a Vice President from 1991
to 1994 and joined The Blackstone Group L.P. in 1988. Mr. Lipson is a director
of Volume Services, Inc., Prime Succession Inc., Ritvik Holdings, Inc., AMF
Group, Inc., Rose Hills, Inc. and Transtar Holdings, L.P. Mr. Lipson is a member
of the Organization and Compensation Committee of UCAR's Board of Directors..
Peter G. Peterson was elected director of UCAR in connection with the
Recapitalization. He is a Co-Founder and has served as Chairman of The
Blackstone Group L.P. since 1985. Mr. Peterson is also a director of Sony
Corporation, Transtar Holdings L.P. and the Federal Reserve Bank of New York.
Stephen A. Schwarzman was elected director of UCAR in connection with the
Recapitalization. He is a Co-Founder and has served as President and Chief
Executive Officer of The Blackstone Group L.P. since 1985. Mr. Schwarzman is
also a director of Great Lakes Dredge & Dock Corporation, Transtar, Inc.,
Collins & Aikman Corporation and Volume Services, Inc.
-29-76
SELLING STOCKHOLDERS
The following table sets forth the number and percentage, as of February
28, 1997, of outstandingSHARES ELIGIBLE FOR FUTURE SALE
After this offering, 53,506,002 shares of Common Stock owned beneficially by the
Selling Stockholders before the Offering, the number of Shares to be sold by the
Selling Stockholders in the Offering and the percentage, as of February 28,
1997, of outstanding shares of Common Stock to be beneficially owned by the
Selling Stockholders after the Offering and the Blackstone Share Repurchase.
With respect to shares held by BFIP and shares held by BCP and BOCP allocable to
the general partner thereof, 1,033,485 of such shares (the 'Principal Retained
Interest')our common stock will be
retained for subsequent distribution to and/or sale by or foroutstanding, 54,706,002 shares, if the account of the indirect owners of such shares. With respect to shares held
by BCP and BOCP allocable to their limited partners, certain of such limited
partners have elected to retain an aggregate of 392,673 of their respective
allocated shares in lieu of having such shares sold in the Offering (the
'Limited Partner Retained Interest' and, together with the Principal Retained
Interest, the 'Retained Interest'). The Retained Interest constitutes
approximately 3.1% of the outstanding Common Stock.
PERCENTAGE OF OUTSTANDING SHARES
------------------------------------------------------
NUMBER SHARES AFTER OFFERING AND
NAME AND ADDRESS OF OF SHARES TO BE BEFORE BLACKSTONE
BENEFICIAL OWNER BEFORE OFFERING SOLD OFFERING SHARE REPURCHASE
- ------------------------------ --------------- ---------- -------------------------------- ------------------
Blackstone Management 9,137,385(b) 7,700,958(c) 19.5%(b) 0.0%(d)
Associates II LLC
('BMA II')(a) ..............
345 Park Avenue
New York, NY 10154
Glenn H. Hutchins(b)(e)(f).... 9,137,385 -- 19.5% *
Howard A. Lipson(b)(e)(f)..... 9,137,385 -- 19.5% *
Peter G. Peterson(b)(e)(f).... 9,137,385 -- 19.5% *
Stephen A. 9,137,385 -- 19.5% *
Schwarzman(b)(e)(f).........
- ------------------
(a) BMA II, as the general partner of each of BCP, BOCP and BFIP, exercises
voting and dispositive power with respect to the shares beneficially owned
by Blackstone.
(b) 9,137,385 shares, or 19.5%, of the outstanding shares (before the Offering)
are held collectively by BCP, BOCP and BFIP. BCP, BOCP and BFIP may be
deemed beneficially to own 9,969,919 shares, or 21.3%, of the outstanding
shares (before the Offering), collectively, due to (i) an agreement between
Blackstone and Chase Equity Associates, L.P. pursuant to which Chase Equity
Associates, L.P. has agreed to vote its shares in the same manner as
Blackstone votes its shares and (ii) agreements between Blackstone and
certain members of management pursuant to which they have agreed to vote
their shares in the same manner as Blackstone votes its shares, all of
which agreements are expected to terminate upon the closing of the
Offering.
(c) Assumes that theunderwriters' over-allotment option is
exercised in full, and gives
effect to the Blackstone Share Repurchase.
(d) Assumes that the over-allotment option is exercised in full and excludes
the Retained Interest. If the over-allotment option is not exercised,
approximately 1.3% of the outstanding shares of Common Stock would be owned
by Blackstone after the Offering, excluding the Retained Interest.
(e) Each such person's business address is c/o The Blackstone Group L.P., 345
Park Avenue, New York, NY 10154.
(f) Messrs. Peterson, Schwarzman, Hutchins and Lipson are members of the
general partner of each of BCP, BOCP and BFIP. Beneficial ownership of
shares by such four individuals (before the Offering) includes the shares
beneficially owned by each of BCP, BOCP and BFIP, and each of such persons
disclaims beneficial ownership of such shares.
* Represents such person's allocable share of the Principal Retained
Interest, which in each case excluding 426,400 shares held by us in an
employee benefits trust which are not currently considered outstanding for
calculation of basic or diluted earnings per share, and we will represent less than 1% of the
outstanding shares.
UCAR, Blackstone and Chase Equity Associates, L.P. are parties to an
Amended and Restated Stockholders' Agreement (the 'Stockholders' Agreement')
which granted certain registration rights, restricted certain transactions
between UCAR and Blackstone, contained certain transfer restrictions, granted
certain 'tag-along' and 'drag-along' rights and provided for certain rights and
obligations relating to votinghave reserved
11,000,000 shares of Common Stockcommon stock for issuance pursuant to our stock option and
equity incentive plans (and have outstanding options to purchase an aggregate of
8,049,858 of those shares thereunder). All of such shares generally will be
freely transferable without restriction or further registration under the
Securities Act, except that any shares held by Chase Equity
Associates, L.P. UCAR currently pays a monitoring fee of approximately $1
million per year to Blackstonean "affiliate" as permitted bydefined in
Rule 144 under the Stockholders' Agreement. It
is expected that,Securities Act may be sold only upon registration under the
Securities Act or in connectioncompliance with the closing of the Offering and the
Blackstone Share Repurchase, such payments and all provisions of the
Stockholders' Agreement will terminateRule 144 or any other than the provisions relating to
certain registration rights and indemnification and reimbursement of expenses in
connection with registration rights and monitoring services. Under the
Stockholders' Agreement, UCAR has agreed to indemnify the Selling Stockholders
against certain liabilities, including civil liabilitiesapplicable exception
under the Securities Act. PursuantWe believe that the only persons who may be considered
affiliates of the company are our executive officers and directors. We have
filed and intend to a Stock Repurchase Agreement dated April 2, 1997 among UCAR,
BCP, BOCP, BFIPfile with the SEC registration statements relating to our
stock option and Chase Equity Associates, L.P. (the 'Repurchase Agreement'),
UCAR has agreedequity incentive plans.
In general, Rule 144 limits the number of shares that an affiliate of ours
can sell within any three-month period to repurchase from Blackstone an aggregatethe greater (i) one percent of 1,300,000the
then outstanding shares of Common Stock upon the closingcommon stock and (ii) the average weekly trading
volume of the Offering atcommon stock during the same price per share at
whichfour calendar weeks preceding the Sharessale.
Rule 144 sales are soldalso subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about us. Under
Rule 144, however, a person who has held restricted securities for a minimum of
two years from the later of the date such securities were acquired from us or an
affiliate of ours and who is not, and for the three months prior to the U.S. Underwriterssale of
such restricted securities has not been, an affiliate of ours, is free to sell
such shares of common stock without regard to the volume, manner-of-sale and the
Managersother limitations contained in the
Offering, which repurchase will constituteRule 144. The foregoing summary of Rule 144 is
not intended to be a part of UCAR's previously announced
stock repurchase program. The obligation to consummate such repurchase is
conditioned on the closing of the Offering and will terminate if the Offering
does not close on or before April 30, 1997.
-30-
complete discussion thereof.
In connection with the Recapitalization,this offering, we, subject to certain memberslimited exceptions,
and our executive officers and directors have agreed not to sell or otherwise
dispose of management
entered into agreements with UCAR and UCAR adopted a stock option plan and an
equity ownership program structured with the advice of Blackstone. These
agreements, plan and program contained certain 'holdback' provisions, provided
for certain 'drag-along' and 'tag-along' rights, granted certain registration
rights, contained certain transfer restrictions, provided for certain tax
assistance loans and related collateralization arrangements and provided for
certain rights and obligations relating to voting shares of Common Stock held by
certain membersour common stock for a period of management. In connection with90 days after the closingdate of
this prospectus. J.P. Morgan Securities Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the Offeringshares subject to
such restrictions. After this lockup period, we and the Blackstone Share Repurchase, such provisionsour executive officers and
directors will terminate pursuantbe free to their terms or pursuantsell shares of our common stock, subject to the
Repurchase Agreement, other than those related to
loan collateralization which shalllimitations described above.
No prediction can be modified to release UCAR securities
constituting such collateralmade as to the extenteffect, if any, that future sales of
shares, or the valueavailability of such collateral exceedsshares for future sales, will have on the principalmarket
price of our common stock prevailing from time to time. Sales of substantial
amounts of our common stock in the public market, or the perception that such
loans.sales could occur, could adversely affect prevailing market prices for our
common stock and could impair our ability to raise capital through an offering
of our equity securities. The market price of our common stock could decline as
a result of sales by our existing stockholders of a large number of shares of
our common stock in the market after this offering, or the perception that these
sales may occur. These sales might also make it more difficult for us to sell
equity securities in the future and at a price that we deem appropriate.
77
CERTAIN UNITED STATESU.S. TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
A general discussionFOR NON-U.S. INVESTORS
INTRODUCTION
The following is a summary of certain United Statesmaterial U.S. federal income and
estate tax consequences of the ownershipowning and dispositiondisposing of Common Stock applicableour common stock that may be
relevant to Non-U.S. Holders (as defined) of Common Stock is set forth below.non-U.S. investors. In general, a 'Non-U.S. Holder'"non-U.S. investor" is any person
or entity that is, for U.S. federal tax purposes:
a person other than: (i)nonresident alien individual;
a citizenforeign corporation;
a foreign estate or trust; or
a foreign partnership.
An individual may be deemed to be a resident (as defined
for United States federal income or estate tax purposes,alien, as the case may be)opposed to a
nonresident alien, by virtue of the United States; (ii) a corporation organizedbeing present in or under the laws of the United States orfor at least
31 days in the current calendar year and for an aggregate of at least 183 days
during a political subdivision thereof; or (iii) an estate or trustthree-year period ending in the incomecurrent calendar year. For these
purposes, all the days present in the current year, one-third of which isthe days
present in the immediately preceding year and one-sixth of the days present in
the second preceding year are counted. Resident aliens generally are subject to
United StatesU.S. federal income taxation
regardlesstax as if they were U.S. citizens.
This summary does not address all of the federal tax considerations that may
be relevant to a non-U.S. investor in light of its source. The discussionparticular circumstances and
does not discuss any state, local or foreign tax. This summary is based on
current law, andwhich is provided
for general information only. The discussion does not address aspects of United
States federal taxation other than income and estate taxation and does not
address all aspects of federal income and estate taxation. The discussion does
not consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder and does not address all aspects of United States federal income
tax law that may be relevant to Non-U.S. Holders that may be subject to special
treatment under such law (for example, insurance companies, tax-exempt
organizations, financial institutionschange, possibly with retroactive effect, or
broker-dealers). ACCORDINGLY,different interpretations. This summary is limited to non-U.S. investors who are
the initial purchasers of common stock and who hold the common stock as a
capital asset.
PROSPECTIVE INVESTORS ARE URGEDADVISED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE UNITED STATESU.S. FEDERAL TAX CONSEQUENCES RELATING TO THE OWNERSHIP AND
DISPOSITION OF THE COMMON STOCK AS WELL AS THE EFFECT OF ANY STATE, LOCAL AND NON-U.S. CURRENT AND POSSIBLE FUTURE
INCOME AND OTHEROR
FOREIGN TAX CONSEQUENCES OF HOLDING AND DISPOSING OF COMMON STOCK.LAWS.
DIVIDENDS
In general, the gross amount of dividendsDividends paid to a Non-U.S. Holdernon-U.S. investor generally will be subject to
United States withholding of federal income tax at a 30% rate (or anyor such lower rate prescribedas may be
specified by an applicable income tax treaty) unless the dividends are effectively
connected withtreaty. To claim a tradereduced treaty rate, a
non-U.S. investor must furnish to us or business carried on by the Non-U.S. Holder within the
United States. In determining the applicability ofour paying agent a tax treaty that provides
for a lower rate of withholding, dividends paid to an address in a foreign
country are presumed under current regulations of the Treasury Department to be
paid to a resident of that country. Under proposed Treasury regulations,
however, a Non-U.S. Holder would be required to file certain forms in order to
claim the benefit of an applicable treaty rate. Dividends effectively connected
with a trade or business carried on by a Non-U.S. Holder within the United
States will generally not be subject to withholding (if the Non-U.S. Holder
properly filescompleted Internal
Revenue Service Form 4224 with the payor of the
dividend) and will generally be subject to United States federal income tax at
ordinary federal income tax rates. Effectively connected dividends may be
subject to different treatment under an applicable tax treaty depending on
whether suchW-8BEN (or successor form) certifying that it qualifies for
a reduced rate. In addition, if dividends are attributablepaid to a permanent establishment of the
Non-U.S. Holdernon-U.S. investor that
is a partnership or other pass through entity, persons holding interests in the
United States. Inentity may need to provide certification claiming an exemption or reduction in
withholding under the case of a Non-U.S. Holder whichapplicable treaty. A non-U.S. investor that is
a corporation, effectively connected income may be subject to the branch profits
tax (which is generally imposed on a foreign corporation at a rate of 30% of the
deemed repatriation from the United States of 'effectively connected earnings
and profits') except to the extent that an applicable tax treaty provides
otherwise. A Non-U.S. Holder eligible
for a reduced rate of United StatesU.S. withholding tax pursuant to an income tax treaty may
obtain a refund of any excess amounts withheld by filing an appropriate claim
for refund with the Internal Revenue Service.
Dividends that are effectively connected with the conduct by a non-U.S.
investor of a trade or business within the United States or, if a treaty
applies, attributable to a permanent establishment of a non-U.S. investor within
the United States, will be exempt from withholding tax, provided the non-U.S.
investor provides us or our paying agent with an Internal Revenue Service
Form W-8ECI (or successor form) containing the non-U.S. investor's taxpayer
identification number. Effectively connected dividend income will be subject to
U.S. federal income tax on a net basis at applicable graduated rates.
Effectively connected dividend income of a non-U.S. investor that is a
corporation may be subject to an additional branch profits tax at a rate of 30%
or a lower rate specified by an applicable income tax treaty.
78
Non-U.S. investors must comply with the certification procedures described
above, or, in the case of payments made outside the United States with respect
to an offshore account, certain documentary evidence procedures, directly or
under certain circumstances through an intermediary, to obtain the benefit of a
reduced rate under an applicable income tax treaty with respect to dividends
paid with respect to the common stock. In addition, if a non-U.S. investor is
required to provide an Internal Revenue Service Form W-8ECI (or successor form),
as discussed above, the non-U.S. investor must provide his or its taxpayer
identification number.
SALE OR OTHER DISPOSITION OF COMMON STOCK
Generally, a Non-U.S. HolderA non-U.S. investor generally will not be subject to United States federal income tax on
any gain realized uponrecognized on the sale or other disposition of his Common Stock unless:
(i) UCAR has been, is, or becomes a 'U.S. real property holding corporation' forour common stock, except
in the following circumstances:
(1) The gain will be subject to federal income tax purposes and certain other requirements are met; (ii) the
gainif it is
-31-
effectively
connected with a trade or business carried on byof the Non-U.S. Holder
(or by a partnership, trust or estate in which the Non-U.S. Holder is a partner
or beneficiary)non-U.S. investor within the
United States;States or, (iii)if a treaty applies, is attributable to a permanent
establishment of the Common Stocknon-U.S. investor. If the non-U.S. investor is disposed
ofa
foreign corporation, it may be subject to an additional branch profits
tax equal to 30% or a lower rate specified by an applicable income tax
treaty.
(2) The gain will be subject to federal income tax if the non-U.S. investor
is an individual Non-U.S. Holder, who holds the Common Stockcommon stock as a capital asset, and is
present in the United States for 183 days or more days in the taxable year of
the sale or other disposition, and certain other conditions are met.
(3) The gain may be subject to federal income tax pursuant to federal income
tax laws applicable to certain expatriates.
(4) The gain may be subject to federal income tax if we are or have been
during certain periods a "United States real property holding
corporation" and the gainsnon-U.S. investor actually or constructively held,
at any time during the five-year period ending on the date of disposition
(or, if shorter, the non-U.S. investor's holding period), more than five
percent of our common stock outstanding. We believe that we are considered derived from sources
within the United States. UCAR believes that it has not been, is not
currently, and based upon its current business plans, isare not likely to become, a U.S.United States real property
holding corporation. A Non-U.S. Holder also may be subject to tax
pursuant to the provisions of United States tax law applicable to certain United
States expatriates. Non-U.S. Holders should consult applicable treaties, which
may exempt from United States taxation gains realized upon the disposition of
Common Stockcorporation; however, we can give no assurance in certain cases.
ESTATE TAX
Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.this regard.
INFORMATION REPORTING AND BACKUP WITHHOLDING
AND INFORMATION REPORTING
UCARWe must report annually to the Internal Revenue Service and to Non-U.S.
Holderseach non-U.S.
investor the amount of dividends paid to each such non-U.S. investor and the tax
withheld with respect to each Non-U.S. Holder. These information reporting requirements applythose dividends, regardless of whether withholding was
reduced by an applicable tax treaty or if withholding
was not required because the dividends were effectively connected with a trade
or business in the United Statesrequired. Copies of the Non-U.S. Holder. Copies of these
information returns reporting those dividends and
withholding may also may be made available under the provisions of a
specific treaty or agreement to the tax authorities in the country in
which the Non-U.S. Holdernon-U.S. investor resides under the provisions of an applicable income
tax treaty or other applicable agreements.
Backup withholding is established. Under current law, United States
backup withholding tax (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that
fail to furnish the necessary identifying information required under the United States information reporting and backup withholding
rules) generally will not apply to dividends paid on Common Stock to a Non-U.S.
Holder at an address outside the United States, absent actual knowledge by the payor thatat (i) the
payee is not a Non-U.S. Holderrate of 31% before August 7, 2001, or after calendar year 2010, and (ii) the
fourth lowest rate of tax applicable to dividends paid to Non-U.S.
Holders that are either subjectunmarried individual U.S. persons on
dividend payments made with respect to the U.S. withholding tax (whether atcommon stock for any other period
(30.5% in 2001, 30% or a
reduced treaty rate) or that are exempt from such withholding because such
dividends constitute effectively connected income. Under proposed United States
Treasury regulations not currently in effect, however, a Non-U.S. Holder2002 and 2003, 29% in 2004 and 2005, and 28% in 2006
through 2010). A non-U.S. investor will be subject to backup withholding tax
with respect to dividends paid on common stock unless applicable certification requirements are
met. Backupthe non-U.S. investor
certifies his or its non-U.S. status.
The payment of proceeds of a sale of our common stock effected by or through
a U.S. office of a broker is subject to both backup withholding and information
reporting generally will apply to
dividends paid on Common Stock to a Non-U.S. Holder at an address insideunless the United States unless such Non-U.S. Holder owner, under penalties of perjury,non-U.S. investor certifies among other things, its non-U.S. status as a Non-U.S. Holder or
otherwise establishes an exemption. TheIn general, backup withholding and
information reporting will not apply to the payment of the proceeds from the disposition of Common Stock to or
through the United States office of a broker will be subject to information
reporting and backup withholding unless the owner certifies its foreign status
as described above or otherwise establishes an exemption. The paymentsale of
the
proceeds from the disposition of Common Stock toour common stock by
79
or through a foreign office of a non-Unitedbroker. If, however, such broker is, for U.S.
federal income tax purposes, a U.S. person, a controlled foreign corporation, a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, brokeror a foreign
partnership with certain connections to the United States, such payments will not be subject to backup withholding and
generally will not be
subject to information reporting. Unless thereporting, but not backup withholding, unless such broker
has documentary evidence in its filesrecords that the ownernon-U.S. investor is a Non-U.S. Holdernon-U.S.
investor and certain other conditions are metsatisfied or the holdernon-U.S. investor
otherwise establishes an exemption,
information reporting generally will apply to dispositions through (a) a non-
United States office of a United States broker and (b) a non-United States
office of a non-United States broker thatexemption.
Backup withholding is either a 'controlled foreign
corporation' for United States federal income tax purposes or a person 50% or
more of whose gross income from all sources for a three year testing period was
effectively connected with a United States trade or business.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Common Stock is
subject to change.
Any amountnot an additional tax. Amounts withheld under the
backup withholding rules from a payment to a
Non-U.S. Holder would be allowedare generally allowable as a refund or credit against
such Non-U.S. Holder's
United States federal income tax and any amounts withheld in excess of such
Non-U.S. Holder's United Statesthe non-U.S. investor's federal income tax liability, would be refunded,if any, provided, that the
required information is furnished to the Internal Revenue Service.
-32-FEDERAL ESTATE TAXES
A non-U.S. investor that is an individual will have to include in his or her
gross estate for U.S. federal estate purposes any of our common stock held at
the time of such non-U.S. investor's death, and such non-U.S. investor may be
subject to U.S. federal estate tax, unless an applicable estate tax treaty
provides otherwise.
Recently enacted U.S. federal tax legislation provides for reductions in the
U.S. federal estate tax through 2009 and the elimination of the estate tax
entirely in 2010. Pursuant to the legislation, however, the estate tax will be
fully reinstated, as in effect prior to the reductions, in 2011.
80
UNDERWRITING
UnderSubject to the terms and subject toof the conditions contained in an Underwriting
Agreement dated , 1997 (the 'U.S. Underwriting Agreement') among
UCAR, the Selling Stockholders andunderwriting agreement, the underwriters named
below (the 'U.S.
Underwriters'), the U.S. Underwriters have severally but not jointly agreed to purchase from the Selling Stockholdersus the following respective numbers
of U.S.
Shares as set forth opposite their names:shares of common stock:
NAME NUMBER OF U.S. UNDERWRITER U.S. SHARES
- ------------------------------------------------------------------------------------------ --------------- ----------------
J.P. Morgan Securities Inc..................................
Credit Suisse First Boston Corporation.................................................... 1,081,668
Dillon, Read & Co. Inc.................................................................... 465,000
Goldman, Sachs & Co....................................................................... 1,081,666Corporation......................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................................... 1,081,666
PaineWebber Incorporated.................................................................. 465,000
The Nikko Securities Co. International, Inc............................................... 465,000
-----------
Total.............................................................................. 4,640,000
-----------
-----------Incorporated......................................
---------------------------
Total................................................... 8,000,000
===========================
The U.S. Underwriting Agreementunderwriting agreement provides that the obligations of the U.S.
Underwritersunderwriters
are subject to certain conditions precedent, including the absence of any
material adverse change in our business and that the U.S.
Underwriters will be obligatedreceipt of certain certificates,
opinions and letters from us, our counsel and our independent auditors. The
underwriters are committed to purchase all of such U.S. Shares offered
hereby (other than those covered by the over-allotment option described below)
if any are purchased. The U.S. Underwriting Agreement provides that, in the
event of a default by a U.S. Underwriter in certain circumstances, the purchase
commitments of non-defaulting Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
UCAR and the Selling Stockholders have entered into a Subscription
Agreement (the 'Subscription Agreement') with the Managers of the International
Offering (the 'Managers') providing for the concurrent offer and sale of the
International Shares outside the United States and Canada. The closing of the
U.S. Offering is a condition to the closing of the International Offering and
vice versa.
Blackstone has granted to the U.S. Underwriters and the Managers an option,
exercisable by Credit Suisse First Boston Corporation on behalf of the U.S.
Underwriters and the Managers, expiring at the close of business on the 30th day
after the date of this Prospectus, to purchase up to an additional 611,227 shares of Common Stock (the 'Option Shares') from them atcommon stock offered
by us if they purchase any shares of common stock.
The following table shows the initial public
offering price less theper share and total underwriting discounts and
commissions all as set forth
onwe will pay to the cover page of this Prospectus. The U.S. Underwritersunderwriters. These amounts are shown assuming
both no exercise and the Managers mayfull exercise the option only to cover over-allotments in the sale of the Shares,
including the sale of the International Shares. To the extent that theunderwriters' over-allotment option to
purchase is exercised, each U.S. Underwriter and each Manager will become
obligated, subject to certain conditions, to purchase approximately the same
percentageadditional shares of Option Shares as the number set forth next to such U.S.
Underwriter's name in the preceding table and as the number set forth next to
such Manager's name in the corresponding table in the prospectus relating to the
International Offering bears tocommon stock from us.
UNDERWRITING DISCOUNTS AND COMMISSIONS
WITH WITHOUT
OVER-ALLOTMENT OVER-ALLOTMENT
EXERCISE EXERCISE
-------------- --------------
Per Share................................................ $ $
Total................................................ $ $
We estimate that the total numberexpenses of Shares in such tables.
UCARthis offering, excluding underwriting
discounts and the Selling Stockholders have been advised by Credit Suisse First
Boston Corporation, on behalf of the U.S. Underwriters, that the U.S.
Underwriterscommissions, will be approximately $ .
The underwriters propose to offer the U.S. Shares in the United States and Canadashares of common stock directly to the
public initially at the public offering price set forth on the cover page of this
Prospectusprospectus and to certain dealers at suchthat price less a concession not in excess
of $.85$ per share and that the U.S. Underwritersshare. The underwriters may allow and such dealers may
allowreallow a discountconcession not in excess of $.10$ per share on sales to certain other dealers.
After the initial public offering, the publicunderwriters may change the offering price concession and
discountother selling terms.
We have granted to dealers may be
changed by the U.S. Underwriters.
The public offering price,underwriters an option, exercisable no later than 30
days after the aggregate underwriting discounts and
commissions per share and per share concession and discountdate of this prospectus, to dealers for the
U.S. Offering and the International Offering will be identical. Pursuantpurchase up to an Agreement between the U.S. Underwriters and the Managers (the 'Intersyndicate
Agreement') relating to the Offering, changes in the public offering price,
concession and discount to dealers will be made only upon the mutual agreement
of Credit Suisse First Boston Corporation, on behalf of the U.S. Underwriters,
and Credit Suisse First Boston (Europe) Limited ('CSFBL'), on behalf of the
Managers.
-33-
Pursuant to the Intersyndicate Agreement, each of the U.S. Underwriters has
agreed that, as part of the distribution of the U.S. Shares and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, anyadditional
1,200,000 shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States or Canada
or to any other dealer who does not so agree. Each of the Managers has agreed or
will agree that, as part of the distribution of the International Shares and
subject to certain exceptions, it has not offered or sold, and will not offer or
sell, directly or indirectly, any shares of Common Stock or distribute any
prospectus relating to the Common Stock to any person in the United States or
Canada or to any other dealer who does not so agree. These limitations do not
apply to stabilization transactions or to transactions between the U.S.
Underwriters and the Managers pursuant to the Intersyndicate Agreement. As used
herein, 'United States' means the United States of America (including the States
and the District of Columbia), its territories, possessions and other areas
subject to its jurisdiction, 'Canada' means Canada, its provinces, territories,
possessions and other areas subject to its jurisdiction, and an offer or sale
shall be in the United States or Canada if it is made to (i) an individual
resident in the United States or Canada or (ii) a corporation, partnership,
pension, profit-sharing or other trust or other entity (including any such
entity acting as an investment adviser with discretionary authority) whose
office most directly involved with the purchase is located in the United States
or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
U.S. Underwriters and the Managers of such number of Shares as may be mutually
agreed. The price of any Shares so sold shall becommon stock from us at the public offering price less such amount as may be mutually agreed upon by Credit Suisse First Boston
Corporation, on behalf of the
U.S. Underwriters, and CSFBL, on behalf of the
Managers, but not exceeding the selling concession applicable to such Shares. To
the extent there are sales between the U.S. Underwriters and the Managers
pursuant to the Intersyndicate Agreement, the number of Shares initially
available for sale by the U.S. Underwriters or by the Managers may be more or
less than the amount appearingunderwriting discounts set forth on the cover page of this Prospectus. Neitherprospectus. To the
U.S. Underwriters norextent that the Managers are obligatedunderwriters exercise this option, each underwriter will have a
firm commitment to purchase fromapproximately the other any
unsold Shares.
This Prospectussame percentage thereof which the
number of shares of common stock to be purchased by it shown in the table above
bears to the total number of shares of common stock offered hereby. The
underwriters may be used by underwriters and dealersexercise this option only to cover over-allotments made in
connection with salesthe sale of International Shares to persons located inshares of common stock offered hereby.
The offering of the United States, to the
extent such sales are permittedshares of common stock is made for delivery when, as and
if accepted by the contractual limitations on sales
described above.
UCAR, certainunderwriters and subject to prior sale and to withdrawal,
cancellation or modification of its executive officers and directors and Blackstone have
agreed that nonethis offering
81
without notice. The underwriters reserve the right to reject an order for the
purchase of them will, directly or indirectly, offer, sell, announce its
intention to sell, contract to sell, pledge, hypothecate, grant any option to
purchase or otherwise dispose of, and UCAR has agreed that it will not file with
the Commission a registration statement under the Securities Act relating to,
any shares of Common Stockcommon stock in whole or securities convertible or exchangeable into or
exercisable for any shares of Common Stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 90 days, in the case of
UCAR, and 45 days, in the case of Blackstone and certain of UCAR's directors and
executive officers, after the date of this Prospectus, subject to certain
limited exceptions.
UCAR and the Selling Stockholderspart.
We have agreed to indemnify the U.S.
Underwriters and the Managersunderwriters against certain liabilities,
including civil liabilities under the Securities Act, and to contribute to payments
that the U.S. Underwriters and the Managersunderwriters may be required to make in respect thereof.
Credit Suisse First Boston Corporation,of these liabilities.
We, subject to certain limited exceptions, and our executive officers and
directors have agreed not to, without the prior written consent of J.P. Morgan
Securities Inc., sell or otherwise dispose of any shares of our capital stock,
options or warrants to acquire shares of our capital stock or securities
exchangeable for or convertible into shares of our capital stock for a period of
90 days after the date of this prospectus.
Persons participating in the offering may engage in transactions, including
syndicate covering transactions, stabilizing bids or the imposition of penalty
bids, that may have the effect of stabilizing or maintaining the market price of
shares of common stock at a level above that which might otherwise prevail in
the open market.
A syndicate covering transaction is a bid for or the purchase of shares of
common stock on behalf of the U.S. Underwritersunderwriters to reduce a syndicate short position
incurred by the underwriters in connection with the offering. The underwriters
may create a syndicate short position by making short sales of shares of common
stock and may purchase shares of common stock on the Managers, may engageopen market to cover
syndicate short positions created by short sales. Short sales involve the sale
by the underwriters of a greater number of shares of common stock than they are
required to purchase in this offering. Short sales can be either covered or
naked. Covered short sales are sales made in an amount not greater than the
underwriters' over-allotment stabilizing transactions,
syndicate covering transactions and penalty bidsoption to purchase additional shares from us in accordance with Regulation M
under the
Exchange Act. Over-allotment involves syndicateoffering. Naked short sales are sales in excess of the offering size, which creates a syndicateover-allotment option. A
naked short position. Stabilizing
transactions permit bidsposition is more likely to purchasebe created if the underwriters are
concerned that there may be downward pressure on the price of shares of Common Stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of Common Stockcommon
stock in the open market after pricing that could adversely affect investors who
purchase in this offering. If the distribution has been completed in order to coverunderwriters create a syndicate short
positions.
Penalty bids permit Credit Suisse First Boston Corporation,position, they may choose to reduce or cover this position by either exercising
all or part of the over-allotment option to purchase additional shares of common
stock from us or by engaging in syndicate covering transactions. The
underwriters may close out any covered short position by either exercising their
over-allotment option or purchasing securities in the open market. The
underwriters must close out any naked short position by purchasing securities in
the open market. In determining the source of shares of common stock to close
out the covered short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase securities through the
over-allotment option.
A stabilizing bid is a bid for or the purchase of shares of common stock on
behalf of the U.S. Underwriters andunderwriters for the Managers,purpose of fixing or maintaining the price of
shares of common stock. A penalty bid is an arrangement that permits the
representatives to reclaim athe selling concession from an underwriter or a
dealer whensyndicate member for shares of common stock purchased by the Shares originally sold by such dealer are purchasedrepresentatives in
a syndicate covering transaction to coverand therefore have not been effectively placed
by the underwriter or syndicate short positions. Such
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids
-34-
may cause the price of shares of Common Stock to be higher than it would
otherwise be in the absence of such transactions.member.
These transactions may be effected on the NYSE or otherwise and, if
commenced, may be discontinued at any time. CertainSimilar to other purchase
activities, these activities may have the effect of preventing or retarding a
decline in the market price of shares of common stock. As a result, the price of
shares of common stock may be higher than the price that might otherwise exist
in the open market.
In addition, $ million ($ million, if the underwriters' over-allotment
option is exercised in full) of the U.S. Underwriters have provided certain financial advisorynet proceeds from this offering will be used
for repayment of term loans under the New Senior Facilities, and investment banking servicesthe balance of
the net proceeds may be used to reduce the Companyoutstanding balance under
82
our revolving credit facility under the New Senior Facilities pending use as
otherwise described in this prospectus. J.P. Morgan Securities Inc. and Blackstone in the past. Credit
Suisse First Boston Corporation, wasor their affiliates, are lenders under the placement agent forNew
Senior Facilities. Within the private
placement by UCARlast twelve months, we paid to J.P. Morgan
Securities, Inc., or its affiliates, (i) a financial advisory fee of senior notes$150,000
relating to a potential third party investment in June 1994, Credit Suisse First Boston
Corporationus and Goldman, Sachs & Co. were underwriters for(ii) aggregate fees of
$250,000 in connection with amendments to the offering by
GlobalNew Senior Facilities.
In the ordinary course of their business, the Subordinated Notes in January 1995 and certain of the U.S.
Underwriters and the Managers were underwriters, managing underwriters or managers fortheir
affiliates have engaged, are engaged and may in the Initial Offeringfuture engage in investment
banking, financial advisory and/or commercial banking transactions with us and
the Secondary Offering, for which in each
case they received customary underwriting discounts and commissions. Credit
Suisse First Boston Corporation and Goldman, Sachs & Co. are market-makers with
respect to the Subordinated Notes and, at the time of the Redemption, may have
been the beneficial owner of Subordinated Notes, some of which may have been
redeemed.our affiliates.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Sharesour common stock in Canada is being made only on a
private placement basis exempt from the requirementsrequirement that we prepare and file a
prospectus be prepared and
filed with the securities regulatory authorities in each province where
trades of the Sharescommon stock are effected. Accordingly, anymade. Any resale of the Sharesour common stock in Canada must
be made in accordance withunder applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made in
accordance withunder available
statutory exemptions or pursuant tounder a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the Shares.our common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of SharesBy purchasing our common stock in Canada who receivesand accepting a purchase
confirmation, will be deemeda purchaser is representing to represent to UCAR, the Selling Stockholdersus and the dealer from whom suchthe
purchase confirmation is received that suchthat:
- the purchaser or any
ultimate purchaser for which such initial purchaser is acting as agent (i) is entitled under applicable provincial securities laws to
purchase such Sharesour common stock without the benefit of a prospectus qualified
under suchthose securities laws,
and
pursuant to registration exemptions under such securities laws other than in
Ontario, (ii)- where required by law, that suchthe purchaser is purchasing as principal and
not as agent, and
(iii) such- the purchaser has reviewed the text above under 'ResaleResale Restrictions.' Such purchaser will also be deemed to represent (i)
if in Ontario and purchasing from a person registered with the Ontario
Securities Commission as an international dealer, that such person is a
'designated institution' within the meaning of Section 204 of the Regulation to
the Securities Act (Ontario), (ii) if in Quebec, and purchasing from a person
other than a dealer with an unlimited registration pursuant to the Securities
Act (Quebec), that such purchaser is a 'sophisticated purchaser' within the
meaning of Section 44 of the Securities Act (Quebec), (iii) if in Alberta, that
such purchaser is purchasing Shares with the benefit of the prospectus exemption
provided by Section 107(1) of the Securities Act (Alberta) and (iv) if in
Manitoba, that such purchaser is not an individual. Such purchaser will also be
agreeing that it is such purchaser's express wish that all documents evidencing
or relating in any way to the sale of Shares be written in the English language
only. Chaque acuereur de valeurs mobileres reconnaitra par les presentes et en
accusant reception de la confirmation de sa souscription, avoir expressement
exige que tous les documents attestant la vente des valeurs mobilieres ou s'y
rapportant de quelque maniere que ce soit soient rediges uniquement en anglais.
RIGHTS OF ACTION AND ENFORCEMENT(ONTARIO PURCHASERS)
The securities being offered hereby are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Section 32 of the Regulation under the Securities Act (Ontario).Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws of the United
States. Prospective purchasers are advised to consult their own legal advisers
as to which, or
-35-
whether, any of such rights of action under the civil liability provisions of
the federal securities laws of the United States are available to them.laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer'sour directors and officers as well as the experts named herein and the Selling Stockholders may be
located outside of Canada and, as a result, it may not be possible for Canadian
purchasers to effect service of process within Canada upon the issuer,us or such persons or the Selling Stockholders.persons.
All or a substantial portion of our assets and the assets of the issuer, such persons and the
Selling Stockholders may be
located outside of Canada and, as a result, it may not be possible to satisfy a
judgment against the issuer,us or such persons or the
Selling Stockholders in Canada or to enforce a judgment obtained
in Canadian courts against the issuer, suchus or persons or the Selling Stockholders outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Sharesour common stock to whom the Securities Act (British
Columbia) applies is advised that suchthe purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Shares
purchasedcommon stock acquired by suchthe purchaser pursuant to the Offering. Suchthis offering.
83
The report must be in the form attached to British Columbia Securities
Commission Blanket Order BOR #95/# 95/17, a copy of which may be obtained from UCAR.us.
Only one such report must be filed in respect of Shares purchasedfor common stock acquired on the same date and
under the same prospectus exemption.
TAX CONSIDERATIONS
ProspectiveTAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Sharesour common stock should consult their own legal and
tax advisersadvisors with respect to the tax consequences of an investment in our common
stock in their particular circumstances and about the eligibility of our common
stock for investment by the purchaser under relevant Canadian and other tax considerations applicable to their
individual circumstances.legislation.
LEGAL MATTERS
CertainThe legality of our common stock offered in this offering and certain other
legal matters with respect to the validity of the Shares will be passed upon for UCARus by Kelley Drye & Warren LLP, New York,
New York, and Stamford, Connecticut. Certain legal matters with respect to the Offering will
be passed uponConnecticut, and for the Selling Stockholders by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York. The
U.S. Underwriters have been representedunderwriters by Cravath,
Swaine & Moore, New York, New York.
EXPERTS
The Consolidated Financial Statements of the CompanyOur financial statements at December 31, 19951999 and 19962000 and for each of the
years in the three yearthree-year period ended December 31, 1996, which are included in UCAR's Annual Report on Form 10-K for the year ended
December 31, 1996,2000 have been incorporated by
reference in this Prospectusand included herein and in the Registration Statementregistration statement in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants, which isappearing
elsewhere and incorporated by reference herein, and upon the authority of suchsaid
firm as experts in accounting and auditing.
The report of KPMG Peat Marwick LLP refers to a change in 1996 in the
Company's method of determining LIFO inventories.
-36-84
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZEDUCAR INTERNATIONAL INC.
INDEX TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY U.S.
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTSFINANCIAL STATEMENTS
PAGE
-----------------
Available Information........................... 2
IncorporationUnaudited Consolidated Balance Sheets as of Documents by Reference......... 2
Summary......................................... 4
Risk Factors.................................... 11
The Company..................................... 15
Price RangeDecember 31,
2000 and March 31, 2001................................... F-2
Unaudited Consolidated Statements of Common StockOperations for the
Three Months Ended March 31, 2000 and Dividend Policy............................... 16
Use2001................ F-3
Unaudited Consolidated Statements of Proceeds................................. 16
Capitalization.................................. 17
SelectedCash Flows for the
Three Months Ended March 31, 2000 and 2001................ F-4
Unaudited Consolidated Statement of Stockholders' Equity
(Deficit) for the Three Months Ended March 31, 2001....... F-5
Notes to Unaudited Consolidated Financial Data............ 18
Management's DiscussionStatements........ F-6
Independent Auditors' Report................................ F-18
Consolidated Balance Sheets as of December 31, 1999 and
Analysis2000...................................................... F-19
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1999 and 2000.......................... F-20
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1999 and 2000.......................... F-21
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1998, 1999 and 2000...... F-22
Notes to Consolidated Financial Condition and Results
of Operations................................. 20
Management...................................... 28
Selling Stockholders............................ 30
Certain United States Tax Consequences to
Non-United States Holders..................... 31
Underwriting.................................... 33
Notice to Canadian Residents.................... 35
Legal Matters................................... 36
Experts......................................... 36Statements.................. F-23
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------F-1
UCAR INTERNATIONAL INC. 5,800,000 Shares
Common Stock
($.01 par value)
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
THE NIKKO SECURITIES CO.
INTERNATIONAL, INC.
------------------------------------------------------
------------------------------------------------------AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
AT DECEMBER 31, AT MARCH 31,
2000 2001
--------------- ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 47 $ 56
Notes and accounts receivable............................. 121 98
Inventories:
Raw materials and supplies.............................. 41 37
Work in process......................................... 103 109
Finished goods.......................................... 31 34
----- -----
175 180
Prepaid expenses and deferred income taxes................ 18 16
----- -----
Total current assets.............................. 361 350
----- -----
Property, plant and equipment............................... 1,043 1,013
Less: accumulated depreciation.............................. 652 644
----- -----
Net fixed assets...................................... 391 369
Other assets................................................ 156 160
----- -----
Total assets...................................... $ 908 $ 879
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 99 $ 90
Short-term debt........................................... 3 2
Payments due within one year on long-term debt............ 27 34
Accrued income and other taxes............................ 41 43
Other accrued liabilities................................. 90 84
----- -----
Total current liabilities............................. 260 253
----- -----
Long-term debt.............................................. 705 679
Other long-term obligations................................. 209 213
Deferred income taxes....................................... 36 32
Minority stockholders' equity in consolidated entities...... 14 22
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, 47,491,009 shares issued at December 31,
2000, 48,156,055 shares issued at March 31, 2001........ -- --
Additional paid-in capital................................ 525 532
Accumulated other comprehensive income (loss)............. (241) (249)
Retained earnings (deficit)............................... (515) (512)
Treasury stock at cost, 2,319,482 shares at December 31,
2000 and March 31, 2001................................. (85) (85)
Common stock held in employee benefits trust, 426,400
shares at March 31, 2001................................ -- (6)
----- -----
Total stockholders' equity (deficit)................ (316) (320)
----- -----
Total liabilities and stockholders' equity
(deficit)..................................... $ 908 $ 879
===== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
5,800,000 Shares
[LOGO]
UCAR INTERNATIONAL INC. COMMON STOCK
($.01 par value)
------------------
All 5,800,000 shares of common stock, par value $.01 per share ('Common Stock'),
of UCAR International Inc. ('UCAR') being sold (the 'Shares') are being sold by
Blackstone Capital Partners II Merchant Banking Fund L.P. ('BCP'), Blackstone
Offshore Capital Partners II L.P. ('BOCP') and Blackstone Family Investment
Partnership II L.P. ('BFIP' and, together with BCP and BOCP, 'Blackstone'
or the 'Selling Stockholders'). See 'Selling Stockholders.' UCAR will
repurchase 1,300,000 shares of Common Stock from Blackstone (the
'Blackstone Share Repurchase') upon the closing of the Offering (as
defined below), which repurchase will constitute part of UCAR's
previously announced stock repurchase program. See 'Summary--Recent
Developments.' Following the closing of the Offering and the
Blackstone Share Repurchase and excluding the Retained Interest
(as defined under 'Selling Stockholders'), Blackstone will own
1.3% of the outstanding Common Stock (0.0%, if the
over-allotment option is exercIsed in full). The Retained
Interest will constitute 3.1% of the outstanding Common Stock.
See 'Risk Factors--Shares Eligible For Future Sale' and
'Selling Stockholders.' UCAR will not receive any of the
proceeds from the sale of the Shares.
Of the 5,800,000 shares of Common Stock being offered, 1,160,000 shares (the
'International Shares') are initially being offered outside the United States
and Canada by the Managers (the 'International Offering') and 4,640,000
shares (the 'U.S. Shares') are initially being concurrently offered in
the United States and Canada by the U.S. Underwriters (the 'U.S.
Offering' and, together with the International Offering, the
'Offering'). The offering price and underwriting discounts and
commissions of the International Offering and the U.S. Offering
are identical.
The Common Stock is listed on the New York Stock Exchange (the 'NYSE') under
the symbol 'UCR.' On April 2, 1997, the last reported sale price
of the Common Stock on the NYSE was $38.00.
FOR A DISCUSSIONAND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CERTAIN FACTORS THAT SHOULD BE CONSIDEREDOPERATIONS
(DOLLARS IN CONNECTION WITH
AN INVESTMENT IN THE COMMON STOCK, SEE 'RISK FACTORS' BEGINNING ON PAGE 11.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND SELLING
PUBLIC COMMISSIONS STOCKHOLDERS(1)FOR THE
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 2001
-------- --------
Net sales................................................... $ 195 $ 171
Cost of sales............................................... 138 122
------- -------
Gross profit.............................................. 57 49
Research and development.................................... 3 3
Selling, administrative and other expenses.................. 24 21
Restructuring charge........................................ 6 --
Other (income) expense, net................................. -- --
------- -------
Operating profit.......................................... 24 25
Interest expense............................................ 21 19
------- -------
Income before provision for income taxes, minority
interest and extraordinary item......................... 3 6
Provision for income taxes.................................. -- 2
Income before minority interest and extraordinary item.... 3 4
Less: minority stockholders' share of income................ 1 1
------- -------
Income before extraordinary item.......................... 2 3
Extraordinary item, net of tax.............................. 13 --
------- -------
Net income (loss)....................................... $ (11) $ 3
======= =======
Basic earnings (loss) per common share:
Income before extraordinary item.......................... $ 0.04 $ 0.07
Extraordinary item, net of tax............................ (0.29) --
------- -------
Net income (loss) per share............................... $ (0.25) 0.07
======= =======
Weighted average common shares outstanding (in
thousands).............................................. 45,116 45,222
======= =======
Diluted earnings (loss) per common share:
Income before extraordinary item.......................... $ 0.04 $ 0.07
Extraordinary item, net of tax............................ (0.28) --
------- -------
Net income (loss) per share............................... $ (0.24) $ 0.07
======= =======
Weighted average common shares outstanding (in
thousands).............................................. 46,183 46,033
======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
FOR THE
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 2001
-------- --------
Cash flow from operating activities:
Net income (loss)......................................... $ (11) $ 3
Extraordinary item, net of tax............................ 13 --
Non-cash charges to net income:
Depreciation and amortization........................... 11 10
Deferred income taxes................................... 7 --
Restructuring charge.................................... 6 --
Other non-cash charges.................................. 10 (5)
Working capital *......................................... (16) 5
Long-term assets and liabilities.......................... (6) (2)
----- -----
Net cash provided by operating activities............... 14 11
----- -----
Cash flow from investing activities:
Capital expenditures...................................... (9) (5)
Sale of assets............................................ -- 1
Maturity of short-term investments........................ 2 --
----- -----
Net cash used in investing activities................... (7) (4)
----- -----
Cash flow from financing activities:
Short-term debt borrowings (reductions), net.............. 5 (1)
Revolving credit facility borrowings, net................. 59 2
Long-term debt borrowings................................. 641 --
Long-term debt reductions................................. (689) (7)
Minority interest investment.............................. -- 9
Sale of common stock--stock options....................... -- 1
Financing costs........................................... (25) --
----- -----
Net cash provided by (used in) financing activities..... (9) 4
----- -----
Net increase (decrease) in cash and cash equivalents...... (2) 11
Effect of exchange rate changes on cash and cash
equivalents............................................. -- (2)
Cash and cash equivalents at beginning of period.......... 17 47
----- -----
Cash and cash equivalents at end of period................ $ 15 $ 56
===== =====
Supplemental disclosures of cash flow information:
Net cash paid during the period for:
Interest expense........................................ $ 33 $ 17
===== =====
Income taxes............................................ $ -- $ 6
===== =====
* Net change in working capital due to the following
components:
(Increase) decrease in current assets:
Notes and accounts receivable........................... $ 16 $ 22
Inventories............................................. 1 (11)
Prepaid expenses........................................ (2) --
Increase (decrease) in accounts payable and accruals...... (25) 6
Antitrust investigations and related lawsuits and
claims.................................................. (3) (8)
Restructuring payments.................................... (3) (4)
----- -----
Working capital......................................... $ (16) $ 5
===== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
(UNAUDITED)
ACCUMULATED COMMON STOCK TOTAL
ADDITIONAL OTHER RETAINED HELD IN STOCKHOLDER'S
COMMON PAID-IN COMPREHENSIVE EARNINGS TREASURY EMPLOYEE EQUITY
STOCK CAPITAL INCOME (LOSS) (DEFICIT) STOCK BENEFITS TRUST (DEFICIT)
-------- ---------- -------------- --------- -------- -------------- -------------------------------
Per Share...................................................... $38.00 $1.425 $36.575
Total(2)....................................................... $220,400,000 $8,265,000 $212,135,000
Balance at December 31, 2000.... $ -- $525 $(241) $(515) $ (85) $ -- $(316)
Comprehensive income (loss):
Net income.................... -- -- -- 3 -- -- 3
Foreign currency translation
adjustments................. -- -- (8) -- -- -- (8)
---- ---- ----- ----- ----- ---- -----
Total comprehensive loss.... -- -- (8) 3 -- -- (5)
Common stock issued to employee
benefits trust................ -- 6 -- -- -- (6) --
Sale of common stock--stock
options....................... -- 1 -- -- -- -- 1
---- ---- ----- ----- ----- ---- -----
Balance at March 31, 2001....... $ -- $532 $(249) $(512) $ (85) $ (6) $(320)
==== ==== ===== ===== ===== ==== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Before deductionINTERIM FINANCIAL PRESENTATION
The interim Consolidated Financial Statements are unaudited; however, in the
opinion of expenses payablemanagement, they have been prepared in accordance with Rule 10-01 of
Regulation S-X adopted by the SEC and reflect all adjustments (all of which are
of a normal, recurring nature) which are necessary for a fair presentation of
financial position, results of operations and cash flows for the periods
presented. Results of operations for the three months ended March 31, 2001 are
not necessarily indicative of the results of operations that may be expected for
the entire year ending December 31, 2001.
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 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 bank credit facilities (as amended, the "New Senior
Facilities").
"Graftech" refers to Graftech Inc. only. Graftech 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 our
70% owned subsidiary engaged in the development, manufacture and sale of
graphite and carbon cathodes.
"Subsidiaries" refer to those companies which, at the relevant time, are or
were majority owned or wholly owned directly or indirectly by UCAR or by its
predecessors to the extent that those predecessors' activities related to the
carbon and graphite 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, 1998 through March 31, 2001, except for:
- 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; and
- Carbone Savoie, which has been and is 70% owned.
Our 100% owned Brazilian cathode manufacturing operations were contributed
to Carbone Savoie, and as a result became 70% owned, on March 31, 2001.
"We," "us" or "our" refer collectively to UCAR, its subsidiaries and
predecessors described above or, if the context so requires, UCAR, UCAR Global
or UCAR Finance, individually.
F-6
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 or which
predominately used the dollar for their purchases and sales are included in
other (income) expense (net) in the Consolidated Statements of Operations. Prior
to August 1, 2000, our Swiss subsidiary used the dollar as its functional
currency. Beginning August 1, 2000, our Swiss subsidiary began using the euro as
its functional currency because its sales and purchases became predominantly
euro-denominated.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the FASB issued Statement of Financial Accounting
Standard ("SFAS") 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS 140"), a replacement of
SFAS 125 which has the same title. SFAS 140 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings, and requires certain additional disclosures. SFAS 140 is
effective for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001, and is effective for recognition and
reclassification of collateral and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. We
believe that SFAS 140 will not impact our results of operations, cash flows or
financial position.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 was later amended by
SFAS 137 and SFAS 138. SFAS 133, as amended, requires recognition of the fair
value of all derivative instruments, including certain derivative instruments
embedded in other contracts (collectively called derivatives), on the balance
sheet and establishes new accounting rules for hedging activities. We were
required to adopt SFAS 133, as amended, on January 1, 2001. The adoption did not
impact our results of operations, cash flows or financial position.
(2) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated based upon the
provisions of SFAS 128, "Earnings per Share," using the following share data:
FOR THE
THREE MONTHS
ENDED MARCH 31,
-----------------------
2000 2001
---------- ----------
Weighted average common shares outstanding for Basic
calculation............................................... 45,115,505 45,221,935
Add: Effect of stock options................................ 1,061,949 811,362
---------- ----------
Weighted average common shares Outstanding, adjusted for
diluted calculation....................................... 46,183,454 46,033,297
========== ==========
The calculation of weighted average common shares outstanding for the
diluted calculation excludes stock options for 1,811,351 and 4,318,247 shares in
the three months ended March 31, 2000 and 2001, respectively, because the
exercise of these options would not have been dilutive for either of
F-7
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
those periods due to the fact that the exercise prices were greater than the
weighted average market price of the common stock for each of those periods.
(3) SEGMENT REPORTING
Beginning in the 2001 first quarter, we have realigned our business into two
new reportable segments: Our Graphite Power Systems Division; and our Advanced
Energy Technology Division. Our Graphite Power Systems Division includes our
graphite and carbon electrode and cathode businesses serving primarily the
steel, aluminum and ferroalloy industries. Our Advanced Energy Technology
Division includes Graftech, our graphite specialties business, our refractories
business, and a new business unit called HT(2) that markets technical solutions.
These two segments are managed separately because of the different markets they
serve and the different products and services they sell.
We evaluate the performance of our segments based on gross profit.
Intersegment sales and transfers are not material.
The following tables summarize financial information concerning our
reportable segments.
FOR THE
FOR THE THREE MONTHS
YEAR ENDED ENDED MARCH 31,
DECEMBER 31, -----------------------
2000 2000 2001
------------ -------- --------
(DOLLARS IN MILLIONS)
Net sales to external customers:
Graphite Power Systems Division..................... $651 $161 $136
Advanced Energy Technology Division................. 125 34 35
---- ---- ----
Consolidated net sales............................ $776 $195 $171
==== ==== ====
Gross profit:
Graphite Power Systems Division..................... $184 $ 49 $ 38
Advanced Energy Technology Division................. 32 8 11
---- ---- ----
Consolidated gross profit......................... $216 $ 57 $ 49
==== ==== ====
(4) RESTRUCTURING CHARGES
In the 2000 fourth quarter, we recorded a charge of $4 million in connection
with a corporate restructuring, mainly for severance and related benefits
associated with a workforce reduction of 85 people. The functional areas
affected include finance, accounting, sales, marketing and administration.
In the 2000 first quarter, we recorded a restructuring charge of $6 million
in connection with a restructuring of our graphite specialties business. Key
elements of the restructuring included 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. Based on subsequent
developments in the 2000 third quarter, we decided not to demolish certain
buildings. Therefore, we reversed the $4 million of the charge that related to
demolition and related environmental costs. The $2 million balance of the charge
included estimated severance costs for 65 employees. This restructuring was
completed in 2000.
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
F-8
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
manufacturing operations at $800,000.
(2) Blackstoneour facilities in Canada and Germany and the
centralization and consolidation of administrative and financial functions.
These actions eliminated 371 administrative and manufacturing positions. During
1999, we determined that severance related costs and plant closure costs would
be lower than originally estimated. Therefore, we reversed the $6 million of the
charge that related thereto. Our German plant ceased production activities in
1998. Our Canadian plant ceased production activities in April 1999. The
relocation of our corporate headquarters to Nashville, Tennessee was completed
during 1999. In 2001 first quarter, we paid $3 million related to pension
obligations of our Canadian subsidiary.
The following table summarizes activity relating to the accrued expense in
connection with the restructuring charges.
SEVERANCE POST
AND PLANT SHUTDOWN MONITORING
RELATED AND AND RELATED
COSTS RELATED COSTS COSTS TOTAL
--------- -------------- ----------- --------
(DOLLARS IN MILLIONS)
Restructuring charges in 1998....................... $30 $18 $9 $57
Payments in 1999.................................... (16) (3) (4) (23)
Change in estimate and impact of exchange rate
changes in 1999................................... (1) (5) -- (6)
--- --- -- ---
Balance at December 31, 1999........................ 13 10 5 28
Restructuring charge in 2000........................ 6 3 1 10
Payments in 2000.................................... (5) (1) (1) (7)
Change in estimate and impact of exchange rate
changes in 2000................................... (1) (3) (1) (5)
--- --- -- ---
Balance at December 31, 2000........................ 13 9 4 26
Payments in 2001.................................... (4) -- -- (4)
--- --- -- ---
Balance at March 31, 2001........................... $ 9 $ 9 $4 $22
=== === == ===
The restructuring accrual is included in other accrued liabilities on the
Consolidated Balance Sheets.
(5) LONG-TERM DEBT AND LIQUIDITY
The following table presents our long-term debt:
AT DECEMBER 31, AT MARCH 31,
2000 2001
--------------- ------------
(DOLLARS IN MILLIONS)
New Senior Facilities:
Tranche A euro facility................................... $239 $224
Tranche A USD facility.................................... 54 48
Tranche B USD facility.................................... 346 346
Revolving facility........................................ 88 90
---- ----
Total New Senior Facilities............................. 727 708
---- ----
Swiss mortgage and other European debt...................... 5 5
---- ----
Subtotal.................................................. 732 713
Less: payments due within one year.......................... 27 34
---- ----
Total..................................................... $705 $679
==== ====
F-9
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. In October 2000, the 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.
The New Senior Facilities, as amended, consist of:
- A Tranche A Facility providing for initial term loans of $137 million and
of E161 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 quarterly installments ranging
from about E2 million in 2000 to about E17 million in 2005, with the final
installment payable on December 31, 2005. In October 2000, we converted
$78 million of these term loans from dollar-denominated to
euro-denominated loans. The principal payments (based on euro to dollar
exchange rates at March 31, 2001) due in 2001 total $23 million.
- 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. The
principal payments due in 2001 total $4 million.
- A Revolving Facility providing for dollar and euro-denominated revolving
and swingline loans to, and the issuance of dollar-denominated letters of
credit for the account of, UCAR Finance and certain of our other
subsidiaries in an aggregate principal and stated amount at any time not
to exceed E250 million. 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 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:
- Either 75% or 50% (depending on our leverage ratio, which is the ratio of
our adjusted net debt to our 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.
- 100% of the net proceeds of certain asset sales or certain debt
incurrences.
- 50% of the net proceeds of certain UCAR equity securities issuances.
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 secured and guaranteed intercompany loans of the net
proceeds of borrowings under the New Senior Facilities to UCAR Global's
subsidiaries. The obligations of UCAR
F-10
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 grantedunconditionally and irrevocably guaranteed the Managersobligations 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.
UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed,
with certain exceptions, the obligations of UCAR Global's subsidiaries under the
intercompany loans, except that our foreign subsidiaries have not guaranteed
intercompany loan obligations of our U.S. subsidiaries.
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 interest rates, as amended, 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.
At March 31, 2001, the interest rates on outstanding debt under the New
Senior Facilities was: Tranche A Euro Facility, 7.6%; Tranche A USD Facility,
9.5%; Tranche B Facility, 9.2%; and Revolving Facility, 8.6%. The weighted
average interest rate on the New Senior Facilities was 8.8% during the 2001
first quarter.
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 significant 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. In addition, we are required to
comply with specified minimum interest coverage and maximum leverage ratios,
which become more restrictive over time, beginning September 30, 2001.
Under the New Senior Facilities, UCAR is 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
F-11
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. UCAR Global is permitted to pay dividends and make
loans to UCAR, and repurchase UCAR Global common stock from UCAR, for these
purposes. UCAR Global is also permitted to pay dividends to UCAR of up to
$15 million for the purpose of making an investment in Graftech and may also
distribute the capital stock of Graftech to UCAR. In addition, UCAR may sell to
third parties or distribute to UCAR's stockholders the capital stock of
Graftech.
The aggregate principal payments (based on euro to dollar exchange rates at
March 31, 2001) due in the aggregate on the Tranche A and B Facilities are
$65 million in 2002 and 2003; $76 million in 2004 and 2005; and $165 million in
2006 and 2007.
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 applicable covenants; failure to pay when due, or other defaults 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.
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.
We are highly leveraged and, as discussed in Note 7, have substantial
obligations in connection with antitrust investigations, lawsuits and claims. We
had total debt of $715 million and a stockholders' deficit of $320 million at
March 31, 2001. Our leverage and obligations, as well as changes in conditions
affecting our industry, changes in global and regional economic conditions and
other factors, have adversely impacted our recent results of operations.
We use, and are dependent on, funds available under our revolving credit
facility, including continued compliance with the financial covenants under the
New Senior Facilities, as well as monthly or quarterly cash flow from operations
as our primary sources of liquidity.
Our high leverage and substantial obligations in connection with antitrust
investigations, lawsuits and claims could have a material impact on our
liquidity. Cash flow from operations services payment of our debt and these
obligations, thereby reducing funds available to us for other purposes. Our
leverage and these obligations make us more vulnerable to economic downturns or
in the event that these obligations (including any fine to be assessed by the
antitrust authority of the European Union) are greater or timing of payment is
sooner than expected.
Our ability to service our debt, as it comes due, including maintaining
compliance with the financial covenants under the New Senior Facilities, and to
meet these and other obligations as they come due is dependent on our future
financial and operating performance. This performance, in turn is subject to
various factors, including certain factors beyond our control, such as changes
in conditions affecting our industry, changes in global and regional economic
conditions, changes in interest and currency exchange rates, developments in
antitrust investigations, lawsuits and claims involving us and inflation in raw
material, energy and other costs. While there is no requirement as to when such
fines, if any, must be assessed, we believe that it is likely that fines to be
assessed by the antitrust authority of the European Union will be assessed
during 2001.
F-12
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Even if we are able to meet our debt service and other obligations when due,
we may not be able to comply with the financial covenants under the New Senior
Facilities. A failure to so comply, unless waived by the lenders thereunder,
would be a default thereunder. This would permit the lenders to accelerate the
maturity of substantially all of our debt. It would also permit them to
terminate their commitments to extend credit under our revolving credit
facility. This would have an immediate material adverse effect on our liquidity.
If we were unable to repay our debt to the lenders, the lenders could proceed
against the collateral securing the New Senior Facilities and exercise all other
rights available to them.
The New Senior Facilities require us to, among other things, comply with
specified minimum interest coverage and maximum leverage ratios. In
October 2000, we obtained an amendment to the New Senior Facilities. The
amendment, among other things, increased the maximum leverage ratio permitted
thereunder through June 30, 2001. Beginning September 30, 2001, the ratios
become more restrictive. At March 31, 2001, we were in compliance with those
financial covenants.
While our revolving credit facility provides for maximum borrowings of up to
E250 million, our current ability to borrow under this facility is effectively
substantially less than the maximum due to the impact additional borrowings
under this facility would have on our compliance with the maximum leverage ratio
permitted under the New Senior Facilities.
While no assurances can be made, we believe we will comply with the
covenants under the New Senior Facilities through 2001. If we subsequently
believe that we will not continue to comply with such covenants, we will seek an
appropriate waiver or amendment from the lenders thereunder. There can be no
assurance that we will be able to obtain such waiver or amendment on acceptable
terms or at all.
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.
(6) FINANCIAL INSTRUMENTS
Certain of our subsidiaries sold receivables totaling $61 million in the
2001 first quarter and $19 million in the 2000 first quarter. None of the
receivables sold were recorded on the Consolidated Balance Sheets at March 31,
2001 and December 31, 2000.
(7) CONTINGENCIES
In June 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.
F-13
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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. Underwriters an option,
exercisableresulting 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. In addition, in
April 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 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 plea agreement was
approved by Credit Suisse First Bostonthe 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 1998. The payments due in 1998, 1999
and 2000 were timely made. At our request, each of the remaining three payments
has been deferred by one year.
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, export sales Europe, was indicted by
the DOJ on similar charges. We do not intend to reimburse those officers for
their fines or that director, export sales Europe, for any costs or fines he may
incur as a result of such indictment.
In January 2000, Mitsubishi Corporation, for 30 days fromone 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.
Mitsubishi entered a plea of not guilty. In February 2001, a jury found
Mitsubishi guilty of the charge. Mitsubishi has entered into a sentencing
agreement with the DOJ, which is subject to approval of the court, pursuant to
which Mitsubishi has agreed to pay a fine of $134 million and not appeal its
conviction.
In April 1998, we became aware that the Canadian Competition Bureau (the
"Competition Bureau") had 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 this Prospectus, to purchase a maximum of 611,227 additional shares
of Common Stock solely to cover over-allotments of Shares. If the option is
exercised in full, the total Price to Public will be $243,626,626,
Underwriting Discounts and Commissions will be $9,135,998, and Proceeds
to Selling Stockholders will be $234,490,628.plea agreement. The International Shares are offered by the several Managers when, as and if
delivered to and accepted by the Managers and subject to their right to reject
orders in whole or in part. It is expectedfine was timely paid.
In June 1998, we became aware that the International Shares will be
ready for delivery onJapanese antitrust enforcement
authority had commenced an investigation as to whether there had been any
violation of Japanese antitrust law of producers and distributors of graphite
electrodes. We have no facilities or about April 8, 1997, against paymentemployees in immediately
available funds.
CREDIT SUISSE FIRST BOSTON
DILLON, READ & CO. INC. GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL PAINEWEBBER INTERNATIONAL
NIKKO EUROPE PLC
Prospectus dated April 3, 1997.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY MANAGER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER IN SUCH JURISDICTION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
IN THIS PROSPECTUS, REFERENCES TO 'DOLLARS' AND '$' ARE TO UNITED STATES
DOLLARS.
IN CONNECTION WITH THE OFFERING, CREDIT SUISSE FIRST BOSTON CORPORATION, ON
BEHALF OF THE MANAGERS AND U.S. UNDERWRITERS, MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT
COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE 'SUBSCRIPTION AND SALE.'
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT.
ACTUAL RESULTS, EVENTS OR CIRCUMSTANCES COULD DIFFER MATERIALLY FROM THOSE SET
FORTH IN SUCH STATEMENTS DUE TO VARIOUS FACTORS. SUCH FACTORS
INCLUDE THE POSSIBILITY THAT ANNOUNCED ADDITIONS TO ELECTRIC ARC FURNACE
STEEL PRODUCTION CAPACITY MAY NOT OCCUR, INCREASED ELECTRIC ARC FURNACE
STEEL PRODUCTION MAY NOT OCCUR OR RESULT IN INCREASED DEMAND OR HIGHER
PRICES FOR GRAPHITE ELECTRODES, ACQUIRED MANUFACTURING CAPACITY MAY NOT
BE FULLY UTILIZED, TECHNOLOGICAL ADVANCES EXPECTED BY THE COMPANY MAY
NOT BE ACHIEVED, CHANGING ECONOMIC AND COMPETITIVE CONDITIONS, OTHER
TECHNOLOGICAL DEVELOPMENTS AND OTHER RISKS AND UNCERTAINTIES, INCLUDING
THOSE SET FORTH OR INCORPORATED BY REFERENCE HEREIN.
TABLE OF CONTENTS
PAGE
----
Available Information...................................................................................... 3
Incorporation of Documents by Reference.................................................................... 3
Summary.................................................................................................... 4
Risk Factors............................................................................................... 11
The Company................................................................................................ 15
Price Range of Common Stock and Dividend Policy............................................................ 16
Use of Proceeds............................................................................................ 16
Capitalization............................................................................................. 17
Selected Consolidated Financial Data....................................................................... 18
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20
Management................................................................................................. 28
Selling Stockholders....................................................................................... 30
Certain United States Tax Consequences to Non-United States Holders........................................ 31
Subscription and Sale...................................................................................... 33
Legal Matters.............................................................................................. 35
Experts.................................................................................................... 35
-2-
AVAILABLE INFORMATION
UCAR isJapan. We believe that, among
other things, we have good defenses to any claim that we are subject to the
informational requirementsjurisdiction of the Securities
Exchange ActJapanese antitrust 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 1934 (the 'Exchange Act')an alleged cartel.
In October 1999, we became aware that the Korean antitrust authority had
commenced an investigation as to whether there had been any violations of Korean
antitrust law by producers and distributors of graphite electrodes. We have no
facilities or employees in accordance therewith, files
reports, proxy andKorea. We have received requests for information statementsfrom
the Korean antitrust authority.
In January 2000, the EU Competition Authority issued a statement of
objections initiating proceedings against us and other informationproducers of graphite
electrodes. The statement alleges that we and other producers violated antitrust
law of the European Community and the European Economic Area in connection with
the Securitiessale of graphite electrodes. The statement does not set forth any proposed
fines
F-14
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Exchange Commissionare, therefore, entitled to a reduction in the amount
of any fine which would otherwise be assessed. While there is no requirement as
to when fines, if any, must be assessed, we believe that it is likely that fines
will be assessed during 2001. 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 continue 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 and the
Korean antitrust authorities in their continuing investigations. 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.
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 (the 'Commission'"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, 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") was certified.
In 1998 and 1999, we and other producers of graphite electrodes were served
with complaints and petitions by steelmakers in the U.S. and Canada 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 and 2000, we and other producers of graphite electrodes were served
with three complaints commencing three separate civil antitrust lawsuits (the
"FOREIGN CUSTOMER LAWSUITS"). The reports, proxyfirst complaint was filed by 26 steelmakers
and information statements and other information sorelated parties, all but one of whom are located outside the U.S. The second
complaint was filed may be inspected and
copied atby 4 steelmakers, all of whom are located outside the public reference facilities maintainedU.S.
The third complaint was filed by a steelmaker who is located outside the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and atU.S. In
each complaint, the Commission's
Regional Offices located at Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copiesplaintiffs allege that the defendants violated U.S. federal
antitrust law in connection with the sale of such reports, proxy and information statements and
other information can be obtained at prescribed ratesgraphite electrodes sold or sourced
from the Public Reference
SectionU.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 Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web siteU.S. are actionable under U.S.
federal antitrust law. We have filed motions to dismiss the first and second
complaints.
In 1999 and 2000, we were served with three complaints commencing three
civil antitrust lawsuits (the "CARBON ELECTRODE LAWSUITS"). In the complaints,
the plaintiffs allege that contains reports, proxy and information
statements and other information regarding registrants (including UCAR) that
file electronicallythe defendants violated U.S. federal antitrust law in
connection with the Commission.sale of carbon electrodes and seek, among other things, an
award of treble damages resulting from such alleged violations. The address of such Web site is
http://www.sec.gov. The Common Stock is listed onguilty pleas
described above do not relate to carbon electrodes.
Certain customers in other countries who purchased graphite electrodes,
carbon electrodes or other products from us have threatened to commence
antitrust lawsuits against us in the NYSE, and reports, proxy
and information statements andU.S. or in other information filed with the Commission can
also be inspected at the offices of the NYSE, 20 Broad Street, New York, New
York 10005.
UCAR has filed with the Commission a Registration Statement on Form S-3
(together with amendments, exhibits, schedules and supplements thereto, the
'Registration Statement') under the Securities Act of 1933 (the 'Securities
Act')jurisdictions with respect
to the Shares. This Prospectus, which constitutes a partsubject matter of the Registration Statement, does not containinvestigations and lawsuits described above.
F-15
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Through April 30, 2001, except as described in the next paragraph, we have
settled all of the information set forthlawsuits 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 Registration Statement. Information omitted has been omitted as permitted byU.S. and
Canada arising out of alleged antitrust violations occurring prior to the rules and regulationsdate
of the Commission. For furtherrespective settlements in connection with the sale of graphite
electrodes. The settlement of the antitrust class action also covers the actual
and potential claims against us by certain foreign customers arising out of
alleged antitrust violations occurring prior to the date of the respective
settlements in connection with the sale of graphite electrodes sourced from the
U.S. Although each settlement is unique, in the aggregate they consist primarily
of current and deferred cash payments with some product credits and discounts.
All fines and settlement payments due have been timely paid.
Through March 31, 2001, we have paid an aggregate of $241 million of fines
and net settlement and expense payments and $11 million of imputed interest. At
March 31, 2001, $99 million remained in the reserve and, based on information
known to us at April 30, 2001, the aggregate amount of remaining committed
payments for fines and settlements at March 31, 2001 was about $55 million. The
aggregate amount of remaining committed payments for imputed interest at
March 31, 2001 was about $12 million. About $6 million of the committed payments
for fines and settlements are due on or before March 31, 2002.
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.
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
respectantitrust 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 continuing
investigations 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 March 31, 2001, such amount continues to represent our estimate of
these 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.
STOCKHOLDER DERIVATIVE AND SECURITIES CLASS ACTION LAWSUITS
In March 1998, UCAR was served with a complaint commencing a stockholder
derivative lawsuit. Certain former and current officers and directors were named
as defendants. UCAR was named as a nominal defendant. In October 1999, UCAR and
the Shares, reference isindividual 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. 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 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 for plaintiffs' attorney's fees. We contributed $11.0 million and the
F-16
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
insurers under our directors and officers' insurance policies at the time the
lawsuits were filed contributed the balance of $29.5 million. In addition, 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 expected to incur 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 expected.
LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS
In February 2000, we commenced a lawsuit against our former parents,
Mitsubishi Corporation and Union Carbide Corporation. The other defendants
include 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 January 1995. In the lawsuit, we allege, among other things,
that certain payments made to our former parents in connection with the
Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions in such exhibit, to which reference
is hereby made. The Registration Statement may be inspected at, and copies of
all or any portion of the Registration Statement can be obtained at prescribed
rates from the Public Reference Section of the Commission, 450 Fifth Street,
N.W. Washington, D.C. 20549.
UCAR is a corporation formedrecapitalization were unlawful under the lawsGeneral Corporation Law of the State of
Delaware, on
November 24, 1993.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. The mailing addressdefendants have filed
motions to dismiss this lawsuit and motions to disqualify certain of its principal executive office is 39
Old Ridgebury Road, Danbury, Connecticut 06817. The telephone number of such
office is (203) 207-7700.
INCORPORATION OF DOCUMENTS
BY REFERENCE
The following documents previously filed by UCAR with the Commission are
incorporated by referenceour counsel
from representing us in this Prospectus:
(a) UCAR's Annual Report on Form 10-Klawsuit. We are vigorously opposing those motions.
We expect to incur $10 million to $20 million for the year ended December 31, 1996;
(b) UCAR's Notice of Meetinglegal expenses to pursue this
lawsuit through trial.
OTHER PROCEEDINGS AGAINST US
We are involved in various other investigations, lawsuits, claims and Proxy Statement for the 1996 Annual
Meeting of Stockholders; and
(c) the description of UCAR's capital stock contained in UCAR's
Registration Statement on Form 8-A dated July 28, 1995, as updated by
any amendment or report filed for the purpose of updating such
description.
In addition, all documents filed by UCAR pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and priorother
legal proceedings incidental to the terminationconduct of our business. While it is not
possible to determine the Offering shall be deemedultimate disposition of each of them, we do not
believe that their ultimate disposition will have a material adverse effect on
us.
(8) OTHER TRANSACTIONS
During the 2001 first quarter, we contributed our Brazilian cathode
manufacturing operations with a net book value of $3 million to be incorporated by reference
herein andCarbone Savoie.
Pechiney, the 30% minority owner of Carbone Savoie, contributed approximately
$9 million to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, exceptCarbone Savoie as so modified or superseded,
to constitute a part of this Prospectus.
UCAR will provide without chargetransaction. Prior to each person, including any beneficial
owner of Common Stock, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any orthese
contributions, all of the
documents incorporated by reference herein (other than exhibits to such
documents, unless such exhibits are specifically incorporated by referenceCarbone Savoie's manufacturing operations were located in
the documents that this Prospectus incorporates by reference). Such requests
should be addressed to UCAR International Inc., 39 Old Ridgebury Road, Danbury,
Connecticut 06817, Attention: Investor Relations, telephone number (203)
207-7726.
-3-
SUBSCRIPTION AND SALE
Under the terms and subject to the conditions contained in a Subscription
Agreement dated April 2, 1997 (the 'Subscription Agreement') among UCAR,
the Selling Stockholders and the institutions named below (the 'Managers'), the
Managers have severally but not jointly agreed to purchase from the Selling
Stockholders the following respective numbers of International Shares as set
forth opposite their names:
NUMBER OF
MANAGER INTERNATIONAL SHARES
- ------------------------------------------------------------------------------------ --------------------
Credit Suisse First Boston (Europe) Limited......................................... 270,668
Dillon, Read & Co. Inc.............................................................. 116,000
Goldman Sachs International......................................................... 270,666
Merrill Lynch International......................................................... 270,666
PaineWebber International (UK) Ltd.................................................. 116,000
Nikko Europe Plc.................................................................... 116,000
--------------------
Total........................................................................ 1,160,000
--------------------
--------------------
France. The Subscription Agreement provides that the obligations of the Managers
are subject to certain conditions precedent and that the Managerscash contribution will be obligatedused to purchase allupgrade manufacturing operations
in Brazil and France, which is expected to be completed in early 2002. Ownership
in Carbone Savoie remains 70% by us and 30% by Pechiney. Under our now broadened
alliance, Carbone Savoie holds our entire cathode manufacturing capacity, which
is about 40,000 metric tons of such International Shares offered hereby (other
than those covered bycathodes annually.
During the over-allotment option described below) if any are
purchased. The Subscription Agreement provides that, in2001 first quarter, we signed a ten year service contract with
CGI Group Inc. pursuant to which CGI became the event of a default
by a Manager in certain circumstances, the purchase commitments of the
non-defaulting Managers may be increased or the Subscription Agreement may be
terminated.
UCAR and the Selling Stockholders have been advised by Credit Suisse First
Boston (Europe) Limited ('CSFBL'), on behalf of the Managers, that the Managers
propose to offer the International Shares outside the United States and Canada
to the public initially at the public offering price set forth on the cover page
of this Prospectus and to certain dealers at such price less a commission of
$.10 per share and that the Managers may reallow a commission of $.85 per share
on sales to certain other dealers. After the initial offering, the public
offering price, commission and reallowance may be changed.
UCAR and the Selling Stockholders have entered into an Underwriting
Agreement (the 'U.S. Underwriting Agreement') with the U.S. Underwriters of the
U.S. Offering (the 'U.S. Underwriters') providingdelivery arm for the concurrent offer and
sale of the U.S. Shares in the United States and Canada. The closing of the
International Offering is a condition to the closing of the U.S. Offering and
vice versa.
Blackstone has granted to the Managers and the U.S. Underwriters an option,
exercisable by Credit Suisse First Boston Corporation on behalf of the Managers
and the U.S. Underwriters, expiring at the close of business on the 30th day
after the date of this Prospectus, to purchase up to an additional 611,227
shares of Common Stock (the 'Option Shares') from them at the initial public
offering price less the underwriting discounts and commissions, all as set forth
on the cover page of this Prospectus. The Managers and the U.S. Underwriters may
exercise the option only to cover over-allotments in the sale of the Shares,our global
information technology services requirement, including the saledesign and
implementation of the U.S. Shares. To the extent that the option to
purchase is exercised, each Managerour global information and each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of Option Shares as the number set forth next to such Manager's name
in the preceding tableadvanced manufacturing and as the number set forth next to such U.S.
Underwriter's name in the corresponding table in the prospectus relating to the
U.S. Offering bears to the total number of Shares in such tables.
The public offering price, the aggregate underwriting discounts and
commissions per share and the per share commission and re-allowance to dealers
for the International Offering and the U.S. Offering will be identical. Pursuant
to an Agreement between the U.S. Underwriters and the Managers (the
'Intersyndicate Agreement') relating to the Offering, changes in the public
offering price, commission and re-allowance to dealers will be made only upon
the mutual agreement of CSFBL, on behalf of the Managers, and Credit Suisse
First Boston Corporation, on behalf of the U.S. Underwriters.
-33-
demand
planning processes, using J.D. Edwards software. Pursuant to the Intersyndicate Agreement, eachoutsourcing
provisions of the Managers has agreed
that,contract, CGI will manage our data center services, networks,
desktops, telecommunications and legacy systems operations. Approximately 30 of
our U.S. based employees will be integrated into CGI's U.S. operations as part
of the distributioninitial phase of International Shares and subject to certain
exceptions, it has not offered or sold, and will not offer or sell, directly or
indirectly, anyservices under this contract. The contract is effective
April 16, 2001.
(9) EMPLOYEE BENEFITS TRUST
In March 2001, we issued 426,400 shares of Common Stock or distribute any prospectus relatingcommon stock to the Common StockUCAR Carbon
Benefits Protection Trust. These shares, if later sold, could be used for
partial funding of our future obligations under certain of our compensation and
benefits plans. The shares held in trust are not considered outstanding for
purposes of calculating earnings per share until they are committed to any person inbe sold
or otherwise used for funding purposes.
F-17
INDEPENDENT AUDITORS' REPORT
To the United States or Canada or to any other
dealer who does not so agree. EachBoard of Directors
UCAR International Inc.:
We have audited the U.S. Underwriters has agreed or will
agree that,accompanying Consolidated Balance Sheets of UCAR
International Inc. and Subsidiaries as part of the distribution of the U.S. SharesDecember 31, 1999 and subject to
certain exceptions, it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute any prospectus
relating to the Common Stock to any person outside the United States and Canada
or to any other dealer who does not so agree. These limitations do not apply to
stabilization transactions or to transactions between the Managers2000, and the
U.S.
Underwriters pursuant to the Intersyndicate Agreement. As used herein, 'United
States' means the United States of America (including the States and the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction, 'Canada' means Canada, its provinces, territories, possessions
and other areas subject to its jurisdiction, and an offer or sale shall be in
the United States or Canada if it is made to (i) an individual resident in the
United States or Canada or (ii) a corporation, partnership, pension,
profit-sharing or other trust or other entity (including any such entity acting
as an investment adviser with discretionary authority) whose office most
directly involved with the purchase is located in the United States or Canada.
Pursuant to the Intersyndicate Agreement, sales may be made between the
Managers and the U.S. Underwriters of such number of Shares as may be mutually
agreed. The price of any Shares so sold shall be the public offering price less
such amount as may be mutually agreed upon by CSFBL, on behalf of the Managers,
and Credit Suisse First Boston Corporation, on behalf of the U.S. Underwriters,
but not exceeding the selling concession applicable to such Shares. To the
extent there are sales between the Managers and the U.S. Underwriters pursuant
to the Intersyndicate Agreement, the number of Shares initially available for
sale by the Managers or by the U.S. Underwriters may be more or less than the
amount appearing on the cover page of this Prospectus. Neither the Managers nor
the U.S. Underwriters are obligated to purchase from the other any unsold
Shares.
Each of the Managers and the U.S. Underwriters severally represents and
agrees that (1) it has not offered or sold, and prior to the date six months
after the date of issuance of the Shares will not offer or sell, any shares of
Common Stock to any person in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (2) it has complied and will comply with
all applicable provisions of the Financial Services Act of 1986 with respect to
anything done by it in relation to any shares of Common Stock in, from or
otherwise involving the United Kingdom and (3) it has only issued or passed on
and will only issuance or pass on to any person in the United Kingdom any
document received by it in connection with the issue of any shares of Common
Stock if the person is of a kind described in Article 11(3) of the Financial
Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a
person to whom such document may otherwise lawfully be issued or passed on.
Purchasers of Shares outside the United States may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the public offering price set forth on the cover page
of this Prospectus.
UCAR, certain of its executive officers and directors and Blackstone have
agreed that none of them will, directly or indirectly, offer, sell, announce its
intention to sell, contract to sell, pledge, hypothecate, grant any option to
purchase or otherwise dispose of, and UCAR has agreed that it will not file with
the Commission a registration statement under the Securities Act relating to,
any shares of Common Stock or securities convertible or exchangeable into or
exercisable for any shares of Common Stock without the prior written consent of
Credit Suisse First Boston Corporation for a period of 90 days, in the case of
UCAR, and 45 days, in the case of Blackstone and certain of UCAR's directors and
executive officers, after the date of this Prospectus, subject to certain
limited exceptions.
-34-
UCAR and the Selling Stockholders have agreed to indemnify the Managers and
the U.S. Underwriters against certain liabilities, including civil liabilities
under the Securities Act, and to contribute to payments that the Managers and
the U.S. Underwriters may be required to make in respect thereof.
Credit Suisse First Boston Corporation, on behalf of the U.S. Underwriters
and the Managers, may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase shares of Common Stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit Credit Suisse First Boston Corporation, on behalf
of the U.S. Underwriters and the Managers, to reclaim a selling concession from
a dealer when the Shares originally sold by such dealer are
purchased in a syndicate covering transaction to cover syndicate short
positions. Such over-allotment, stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of shares of Common Stock to
be higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the NYSE or otherwise and, if commenced, may be
discontinued at any time.
Certain of the U.S. Underwriters have provided certain financial advisory
and investment banking services to the Company and Blackstone in the past.
Credit Suisse First Boston Corporation was the placement agent for the private
placement by UCAR of senior notes in June 1994, Credit Suisse First Boston
Corporation and Goldman, Sachs & Co. were underwriters for the offering by
Global of the Subordinated Notes in January 1995 and certain of the U.S.
Underwriters and the Managers were underwriters, managing underwriters or
managers for the Initial Offering and the Secondary Offering, for which in each
case they received customary underwriting discounts and commissions. Credit
Suisse First Boston Corporation and Goldman, Sachs & Co. are market-makers with
respect to the Subordinated Notes and, at the time of the Redemption, may have
been the beneficial owner of Subordinated Notes, some of which may have been
redeemed.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Shares will be
passed upon for UCAR by Kelley Drye & Warren LLP, New York, New York and
Stamford, Connecticut. Certain legal matters with respect to the Offering will
be passed upon for the Selling Stockholders by Simpson Thacher & Bartlett (a
partnership which includes professional corporations), New York, New York. The
Managers have been represented by Cravath, Swaine & Moore, New York, New York.
EXPERTS
Therelated Consolidated Financial Statements of the Company at December 31, 1995Operations, Cash Flows and 1996 andStockholders'
Equity (Deficit) for each of the years in the three yearthree-year period ended
December 31, 1996,2000. These Consolidated Financial Statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these Consolidated Financial Statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of UCAR
International Inc. and Subsidiaries at December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
Nashville, Tennessee
February 15, 2001
F-18
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
AT DECEMBER 31,
-------------------
1999 2000
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17 $ 47
Short-term investments.................................... 3 --
Notes and accounts receivable............................. 171 121
Inventories:
Raw materials and supplies.............................. 49 41
Work in process......................................... 113 103
Finished goods.......................................... 42 31
----- -----
204 175
Prepaid expenses and deferred income taxes................ 25 18
Total current assets.................................... 420 361
----- -----
Property, plant and equipment............................... 1,071 1,005
Less: accumulated depreciation.............................. 673 614
----- -----
Net fixed assets........................................ 398 391
----- -----
Other assets................................................ 115 156
----- -----
Total assets.......................................... $ 933 $ 908
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 80 $ 99
Short-term debt........................................... -- 3
Payments due within one year on long-term debt............ 82 27
Accrued income and other taxes............................ 39 41
Other accrued liabilities................................. 114 90
----- -----
Total current liabilities............................... 315 260
----- -----
Long-term debt.............................................. 640 705
Other long-term obligations................................. 224 209
Deferred income taxes....................................... 33 36
Minority stockholders' equity in consolidated entities...... 14 14
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, 47,491,009 shares issued at December 31, 2000..... -- --
Additional paid-in capital................................ 523 525
Accumulated other comprehensive (loss).................... (205) (241)
Retained earnings (deficit)............................... (525) (515)
Less: cost of common stock held in treasury, 2,338,038
shares at December 31, 1999, 2,319,482 shares at
December 31, 2000....................................... (86) (85)
----- -----
Total stockholders' equity (deficit).................. (293) (316)
----- -----
Total liabilities and stockholders' equity
(deficit)......................................... $ 933 $ 908
===== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-19
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Net sales................................................... $ 947 $ 831 $ 776
Cost of sales............................................... 604 565 560
Cost of sales--write-down of graphite specialties
inventory................................................. -- 8 --
------ ------ ------
Gross profit.............................................. 343 258 216
Research and development.................................... 9 9 11
Selling, administrative and other expenses.................. 103 86 86
Restructuring charges (credit).............................. 86 (6) 6
Impairment loss on long-lived assets........................ 60 35 3
Securities class action and stockholder derivative
lawsuits.................................................. -- 13 (1)
Other (income) expense, net................................. 8 (9) --
------ ------ ------
Operating profit.......................................... 77 130 111
Interest expense............................................ 73 84 75
------ ------ ------
Income before provision for income taxes, minority interest
and extraordinary items................................... 4 46 36
Provision for income taxes.................................. 32 1 10
------ ------ ------
Income (loss) before minority interest and extraordinary
items..................................................... (28) 45 26
Less: minority stockholders' share of income................ 2 3 3
------ ------ ------
Income (loss) before extraordinary items.................... (30) 42 23
Extraordinary items, net of tax............................. 7 -- 13
------ ------ ------
Net income (loss)......................................... $ (37) $ 42 $ 10
====== ====== ======
Earnings (loss) per common share:
Basic:......................................................
Income (loss) before extraordinary items $(0.66) $ 0.94 $ 0.51
Extraordinary items, net of tax........................... (0.17) -- (0.29)
------ ------ ------
Net income (loss) per share............................... $(0.83) $ 0.94 $ 0.22
====== ====== ======
Diluted:....................................................
Income (loss) before extraordinary items $(0.66) $ 0.91 $ 0.50
Extraordinary items, net of tax........................... (0.17) -- (0.28)
------ ------ ------
Net income (loss) per share............................... $(0.83) $ 0.91 $ 0.22
====== ====== ======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-20
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1998 1999 2000
-------- -------- --------
Cash flow from operating activities:
Net income (loss)......................................... $ (37) $ 42 $ 10
Extraordinary item, net of tax............................ 7 -- 13
Non-cash (credits) charges to net income (loss):
Depreciation and amortization........................... 51 45 43
Deferred income taxes................................... (24) (26) (25)
Securities class action and stockholder derivative
lawsuits............................................... -- 13 (1)
Restructuring charge (credit)........................... 86 (6) 6
Impairment loss on long-lived assets.................... 60 35 3
Write-down of graphite specialties inventory............ -- 8 --
Other non-cash (credits) charges........................ (3) 26 6
Working capital*.......................................... (159) (48) 43
Long-term assets and liabilities.......................... (10) (9) (4)
----- ---- ----
Net cash provided by (used in) operating activities..... (29) 80 94
----- ---- ----
Cash flow from investing activities:
Capital expenditures...................................... (52) (56) (52)
Capital incentive grant................................... 3 -- --
Purchase of investment.................................... -- -- (1)
Purchases of short-term investments....................... (28) (20) --
Maturities of short-term investments...................... 37 28 2
Sale of assets............................................ 9 9 1
----- ---- ----
Net cash used in investing activities................... (31) (39) (50)
----- ---- ----
Cash flow from financing activities:
Short-term debt borrowings, net........................... (58) (18) 3
Revolving credit facility borrowings, net................. (30) (3) 56
Long-term debt borrowings................................. 210 -- 661
Long-term debt reductions................................. (52) (59) (707)
Financing costs........................................... (12) -- (28)
Sale of common stock...................................... 4 1 2
Dividends paid to minority stockholder.................... -- (1) --
----- ---- ----
Net cash provided by (used in) financing activities..... 62 (80) (13)
----- ---- ----
Net increase (decrease) in cash and cash equivalents........ 2 (39) 31
Effect of exchange rate changes on cash and cash
equivalents............................................... (2) (2) (1)
----- ---- ----
Cash and cash equivalents at beginning of period............ 58 58 17
----- ---- ----
Cash and cash equivalents at end of period.................. $ 58 $ 17 $ 47
===== ==== ====
Supplemental disclosures of cash flow information:
Net cash paid during the year for:
Interest expense........................................ $ 70 $ 76 $ 81
===== ==== ====
Income taxes............................................ 61 33 13
===== ==== ====
* Net change in working capital due to the following
components:
(Increase) decrease in current assets:
Notes and accounts receivable........................... $ 49 $ 15 $ 30
Inventories............................................. (27) 33 18
Prepaid expenses........................................ (1) 3 3
Payments for antitrust investigations and related lawsuits
and claims.............................................. (142) (64) (23)
Payments for securities class action and stockholder
derivative lawsuits..................................... -- (12) --
Restructuring payments.................................... -- (23) (7)
Increase (decrease) in payables and accruals.............. (38) -- 22
----- ---- ----
Working capital......................................... $(159) $(48) $ 43
===== ==== ====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-21
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN MILLIONS)
TOTAL
ADDITIONAL OTHER RETAINED STOCKHOLDERS'
COMMON PAID-IN COMPREHENSIVE EARNINGS TREASURY EQUITY
STOCK CAPITAL (LOSS) (DEFICIT) STOCK (DEFICIT)
----------- ---------- ------------- --------- -------- -------------
Balance at December 31, 1997...... $ -- $520 $(130) $(525) $(92) $(227)
Comprehensive income (loss):
Net loss...................... -- -- -- (37) -- (37)
Foreign currency translation
adjustments................. -- -- (27) -- -- (27)
Total comprehensive income
(loss)........................ -- -- (27) (37) -- (64)
Sale of common stock--stock
options....................... -- 1 -- -- -- 1
Sale of common stock--treasury
stock......................... -- -- -- (4) 7 3
----------- ---- ----- ----- ---- -----
Balance at December 31, 1998...... -- 521 (157) (566) (85) (287)
----------- ---- ----- ----- ---- -----
Comprehensive income (loss):
Net income.................... -- -- -- 42 -- 42
Foreign currency translation
adjustments................. -- -- (48) -- -- (48)
Total comprehensive income
(loss)........................ -- -- (48) 42 -- (6)
Sale of common stock--treasury
stock......................... -- -- -- (1) 1 --
Acquisition of common stock held
in treasury................... -- 2 -- -- (2) --
----------- ---- ----- ----- ---- -----
Balance at December 31, 1999...... -- 523 (205) (525) (86) (293)
----------- ---- ----- ----- ---- -----
Comprehensive income (loss):
Net income.................... -- -- -- 10 -- 10
Other comprehensive income:
Unrealized loss on
available-for-sale
securities................ -- -- (1) -- -- (1)
Foreign currency translation
adjustments............... -- -- (35) -- -- (35)
----------- ---- ----- ----- ---- -----
Total comprehensive income
(loss)........................ -- -- (36) 10 -- (26)
Sale of common stock--stock
options....................... -- 2 -- -- -- 2
Sale of common stock--treasury
stock......................... -- -- -- -- 1 1
----------- ---- ----- ----- ---- -----
Balance at December 31, 2000...... $ -- $525 $(241) $(515) $(85) $(316)
=========== ==== ===== ===== ==== =====
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-22
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DISCUSSION OF BUSINESS AND STRUCTURE
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 over 80 countries and owning 15 manufacturing facilities
located in Brazil, France, Italy, Mexico, Russia, Spain, South Africa and the
United States.
We currently operate in two business segments: graphite electrodes; and
graphite and carbon products.
GRAPHITE ELECTRODE BUSINESS SEGMENT
Graphite electrodes, our principal products, are consumed primarily in the
production of steel in electric arc furnaces, the steel making technology used
by all "mini-mills." Graphite electrodes are also used for refining steel in
ladle furnaces and in other smelting processes. Graphite electrodes accounted
for about 69% of our net sales in 1998 and 68% in each of 1999 and 2000.
GRAPHITE AND CARBON PRODUCTS BUSINESS SEGMENT
This segment includes carbon electrodes, graphite and carbon cathodes,
flexible graphite, graphite specialties and carbon specialties. Graphite and
carbon products accounted for about 31% of our net sales in 1998 and 32% in each
of 1999 and 2000. Carbon electrodes are used primarily in the production of
silicon metal, which is used in the manufacture of aluminum. Graphite and carbon
cathodes are both used as lining for furnaces that smelt aluminum. Flexible
graphite is used in gaskets and other sealing 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 also developing and introducing high quality, highly engineered natural,
acid-treated and flexible graphite products and solutions for customers for
applications in fuel cells, fire protection in construction and building
materials, energy management in devices such as batteries and supercapacitors,
and heat management in high temperature industrial furnaces. In addition to the
steel and metals industries, we sell other graphite and carbon products to the
semiconductor, automotive and aerospace industries.
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 public 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 the
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 bank credit facilities (as amended, the "New Senior
Facilities").
F-23
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(1) DISCUSSION OF BUSINESS AND STRUCTURE (CONTINUED)
"Graftech" refers to Graftech Inc. only. Graftech (formerly known 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 one of our wholly owned subsidiaries,
in the development, manufacture and sale of graphite and carbon cathodes.
"Subsidiaries" refer to those companies which, at the relevant time, are or
were majority owned or wholly owned directly or indirectly by UCAR or by its
predecessors to the extent that those predecessors activities related to the
carbon and graphite 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, 1998 through December 31, 2000, except for:
- 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; and
- Carbone Savoie, which has been and is 70% owned.
"We," "us" or "our" refer collectively to UCAR and its subsidiaries and
predecessors described above, or if the context so requires, UCAR, UCAR Global
or UCAR Finance, individually.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements present our consolidated financial
position, results of operations and cash flows at the dates and for the periods
indicated. All significant intercompany transactions have been eliminated in
consolidation.
CASH EQUIVALENTS
Cash equivalents are considered to be all highly liquid investments that are
readily convertible to known amounts of cash and so near to maturity that they
present insignificant risk of changes in value because of changes in interest
rates.
SHORT-TERM INVESTMENTS
Investment securities consisted of government securities and other debt
securities. We classify these securities as held-to-maturity and, accordingly,
have recorded them at amortized cost that approximates fair value.
REVENUE RECOGNITION
Sales of our products are recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the revenue amount is determinable
and collection is reasonably assured.
INVENTORIES
Inventories are stated at cost or market, whichever is lower. Cost is
determined on the "first-in first-out" ("FIFO") or the "average cost" method
(which approximates FIFO).
F-24
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS AND DEPRECIATION
Fixed assets are carried at cost. Expenditures for replacements are
capitalized and the replaced items are retired. Gains and losses from the sale
of property are included in other (income) expense, net.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of the assets. We generally use accelerated depreciation methods
for tax purposes, where appropriate.
The carrying value of fixed assets is assessed when factors indicating
impairment are present. We determine such impairment by measuring undiscounted
future cash flows. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If the asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
are reported at the lower of the carrying amount or fair value less costs to
sell.
GOODWILL
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 20 years. When circumstances warrant, we
assess the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired assets. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows of the acquired assets, at our internal rate of
return. The assessment of the recoverability of goodwill will be impacted if
estimated future operating cash flows are not achieved.
DERIVATIVE FINANCIAL INSTRUMENTS
We do not use derivative financial instruments for trading purposes. They
are used to manage well-defined currency exchange rate risks and interest rate
risks. We enter into foreign currency instruments to manage exposure to currency
exchange rate fluctuations. These foreign currency instruments, which include
forward exchange contracts, purchased currency options and currency option
collars, attempt to hedge primarily U.S. dollar-denominated debt held by several
of the our foreign subsidiaries and identifiable foreign currency receivables,
payables and commitments held by our foreign and domestic subsidiaries. Forward
exchange contracts are agreements to exchange different currencies at a
specified future date and at a specified rate. Purchased foreign currency
options are instruments which give the holder the right, but not the obligation,
to exchange different currencies at a specified rate at a specified date or over
a range of specified dates. Currency option collars are financial arrangements
for simultaneous purchases and sales of currency options having the same
maturity and the same principal amount. The result is the creation of a range in
which a best and worst price is defined, while minimizing option cost. Premiums
and discounts on forward exchange contracts are amortized over the life of the
contracts. Net premiums on options purchased (or sold under currency collar
strategies) are amortized over the life of the options. Forward exchange
contracts, purchased currency options and currency option collars are carried at
market value. Gains and losses due to the recording of such contracts at fair
value are recognized currently as other (income) expense, net.
F-25
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
We enter into agreements with financial institutions that are intended to
limit, or cap, our exposure to the incurrence of additional interest expense due
to increases in variable interest rates. Fees related to these interest rate cap
agreements (as well as proceeds received under their provisions) are charged (or
credited) to interest expense over the term of the agreements.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and for operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rate is recognized in income in the period that includes the
enactment date.
STOCK-BASED COMPENSATION PLANS
We account for stock-based compensation plans using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB 25"). As such, compensation expense is recorded
on the date of grant only if the market price of the underlying stock exceeded
the exercise price or if ultimate vesting is subject to performance conditions.
The total amount of recorded compensation expense, if any, is based on the
number of awards that eventually vest. No compensation expense is recognized for
forfeited awards, failure to satisfy a service requirement or failure to satisfy
a performance condition. Our accruals of compensation expense for awards subject
to performance conditions are based on our assessment of the probability of
satisfying the performance conditions.
RETIREMENT PLAN
The cost of pension benefits under the our retirement plans is determined by
independent actuarial firms using the "projected unit credit" actuarial cost
method. Contributions to the U.S. retirement plan are made in accordance with
the requirements of the Employee Retirement Income Security Act of 1974.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
The estimated cost of future medical and life insurance benefits is
determined by independent actuarial firms using the "projected unit credit"
actuarial cost method. Such costs are recognized as employees render the service
necessary to earn the postretirement benefits. Benefits have been accrued, but
not funded.
F-26
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POST-EMPLOYMENT BENEFITS
We accrue post-employment benefits expected to be paid before retirement,
principally severance, over employees' active service periods.
USE OF ESTIMATES
We have made a number of estimates and assumptions relating to the reporting
of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare the Consolidated Financial Statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
RECLASSIFICATION
Certain amounts previously reported have been reclassified to conform to the
current year presentation.
FOREIGN CURRENCY TRANSLATION
Generally, except for operations in Russia where high inflation has existed,
unrealized gains and losses resulting from translation into dollars are
accumulated in other comprehensive income on the Consolidated Balance Sheets
until such time as the operations are sold or substantially or completely
liquidated. Translation gains and losses relating to operations, where high
inflation has existed, are included in other (income) expense, net in the
Consolidated Statements of Operations. Our Mexican subsidiary began using the
dollar as its functional currency during 1999, as its sales and purchases are
predominantly dollar-denominated. Prior to August 1, 2000, our Swiss subsidiary
used the 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-dominated.
NEW ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board ("FASB"), issued
FASB Interpretation No. 44, "Accounting for Certain Transaction involving Stock
Compensation--An Interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
provides guidance for issues that have arisen in applying APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Adoption of FIN 44 did not impact
our results of operations, cash flows or financial position.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements" ("SAB 101"). SAB 101 provides guidance on
recognition, presentation and disclosure of revenues in financial statements.
SAB 101, as amended by the SEC, was adopted by us in the 2000 fourth quarter.
Our existing accounting policies conformed to the requirements of SAB 101.
Therefore, adoption of SAB 101 did not impact our results of operations, cash
flows or financial position.
RECENT ACCOUNTING PRONOUNCEMENTS
In September 2000, the FASB issued Statement of Financial Accounting
Standard ("SFAS") 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" ("SFAS 140"), a replacement of
SFAS 125 which has the same title. SFAS 140 provides consistent
F-27
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings, and requires certain additional
disclosures. SFAS 140 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after March 31, 2001, and is
effective for recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal years ending
after December 15, 2000. We believe that SFAS 140 will not impact our results of
operations, cash flows or financial position.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 was later amended by
SFAS 137 and SFAS 138. SFAS 133, as amended, requires recognition of the fair
value of all derivative instruments, including certain derivative instruments
embedded in other contracts (collectively called derivatives), on the balance
sheet and establishes new accounting rules for hedging activities. We were
required to adopt SFAS 133, as amended, on January 1, 2001. The adoption did not
impact our results of operations, cash flows or financial position.
(3) FINANCIAL INSTRUMENTS
We do not use derivative financial instruments for trading purposes. They
are used to manage well-defined currency exchange rate and interest rate risks.
FOREIGN CURRENCY CONTRACTS
The amount of foreign exchange contracts used by us to minimize foreign
currency exposure was $484 million at December 31, 1998, $233 million at
December 31, 1999 and $69 million at December 31, 2000. Contracts hedging U.S.
dollar-denominated debt totaled $209 million at December 31, 1998, $129 million
at December 31, 1999 and $61 million at December 31, 2000. Of the total foreign
exchange contracts outstanding, approximately $142 million (29%) were offsetting
at December 31, 1998, approximately $3 million (1%) were offsetting at
December 31, 1999 and approximately $9 million (13%) were offsetting at
December 31, 2000.
SALE OF RECEIVABLES
Certain of our foreign subsidiaries sold receivables of $68 million in 1998,
$79 million in 1999 and $152 million in 2000. Receivables sold and remaining on
the Consolidated Balance Sheets were $6 million at December 31, 1998, nil at
December 31, 1999 and nil at December 31, 2000.
INTEREST RATE RISK MANAGEMENT
We periodically enter into agreements with financial institutions which are
intended to limit, or cap, our exposure to the incurrence of additional interest
expense due to increases in variable interest rates. At December 31, 2000, we
had outstanding interest rate caps of $150 million and 200 million limiting our
floating interest rate factor on related debt to a weighted-average rate of 7.4%
(where the interest on the debt is based on LIBOR) and 5.0% (where the interest
on the debt is based on euro LIBOR) through various dates ending February 2002.
Fees related to these agreements are charged to interest expense over the term
of the agreements.
F-28
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) FINANCIAL INSTRUMENTS (CONTINUED)
FAIR MARKET VALUE DISCLOSURES
SFAS 107, "Disclosure about Fair Market Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
Such fair values must often be determined by using one or more methods that
indicate value based on estimates of quantifiable characteristics as of a
particular date. Values were estimated as follows:
CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS, SHORT-TERM
RECEIVABLES, ACCOUNTS PAYABLE AND OTHER CURRENT PAYABLES--The carrying
amount approximates fair value because of the short maturity of these
instruments.
DEBT--Fair values of debt and related interest rate risk agreements
approximate carrying value at December 31 of each of 1998, 1999 and 2000,
respectively, except for the Subordinated Notes which are carried at
$200 million and had an estimated fair market value of $216 million at
December 31, 1998 and $209 million at December 31, 1999 based on quoted
market prices.
FOREIGN CURRENCY CONTRACTS--Foreign currency contracts are carried at
market value. The market value of the contracts was approximately
$1 million at both December 31, 1999 and December 31, 2000.
(4) SEGMENT REPORTING
We have two reportable operating segments: graphite electrodes and graphite
and carbon products. The graphite electrode segment produces and markets
graphite electrodes to electric arc furnace and ladle furnace steel makers. The
graphite and carbon products segment produces and markets carbon electrodes,
flexible graphite, cathodes and graphite and carbon specialties. These
reportable segments are managed separately because of the different products and
markets they serve.
The accounting policies of the reportable segments are the same as those
described in Note 2. We evaluate the performance of our operating segments based
on gross profit. Intersegment sales and transfers are not material.
F-29
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) SEGMENT REPORTING (CONTINUED)
The following tables summarize financial information concerning our
reportable segments. The line item entitled "Other" includes corporate related
items.
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales to external customers:
Graphite electrodes.................................... $652 $562 $526
Graphite and carbon products........................... 295 269 250
---- ---- ----
Consolidated net sales............................... $947 $831 $776
==== ==== ====
Gross profit:
Graphite electrodes.................................... $247 $196 $151
Graphite and carbon products........................... 96 62 65
---- ---- ----
Consolidated gross profit............................ $343 $258 $216
==== ==== ====
Depreciation and amortization:
Graphite electrodes.................................... $ 36 $ 31 $ 33
Graphite and carbon products........................... 11 12 10
Other.................................................. 4 2 $ --
---- ---- ----
Consolidated depreciation and Amortization........... $ 51 $ 45 $ 43
==== ==== ====
We do not report assets by business segment. Assets are managed based on
geographic location because both business segments share certain facilities. The
following tables summarize information as to our operations in different
geographic areas:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Net sales (a):
U.S.................................................... $321 $267 $240
Canada................................................. 56 50 34
Mexico................................................. 65 49 43
Brazil................................................. 57 48 46
France................................................. 148 148 142
Italy.................................................. 47 42 39
Switzerland............................................ 107 106 104
South Africa........................................... 59 61 59
Other countries........................................ 87 60 69
---- ---- ----
Total................................................ $947 $831 $776
==== ==== ====
- ------------------------
(a) Net sales are based on location of seller.
F-30
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) SEGMENT REPORTING (CONTINUED)
AT DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Long-lived assets (b):
U.S.................................................... $166 $126 $115
Mexico................................................. 28 34 38
Brazil................................................. 61 42 37
France................................................. 97 95 93
Italy.................................................. 43 35 31
South Africa........................................... 62 56 43
Switzerland............................................ 2 5 23
Other countries........................................ 24 17 20
---- ---- ----
Total................................................ $483 $410 $400
==== ==== ====
- ------------------------
(b) Long-lived assets represent net fixed assets and goodwill, net of
accumulated amortization.
(5) LONG-TERM DEBT AND LIQUIDITY
The following table presents our long-term debt:
AT DECEMBER 31,
-----------------------
1999 2000
-------- --------
(DOLLARS IN
MILLIONS)
New Senior Facilities:
Tranche A Euro Facility................................... $ -- $239
Tranche A USD Facility.................................... -- 54
Tranche B USD Facility.................................... -- 346
Revolving Facility........................................ -- 88
---- ----
Total New Senior Facilities............................. $ -- $727
==== ====
Prior Senior Facilities:
Tranche A Facility........................................ $158 $ --
Tranche B Facility........................................ 118 --
Tranche C Facility........................................ 209 --
Revolving Facility........................................ 32 --
---- ----
Total Prior Senior Facilities........................... $517 $ --
==== ====
Switzerland mortgage and other European debt................ -- 5
Subordinated Notes.......................................... $200 $ --
Italian lire loans and obligations.......................... 1 --
Deutsche mark loans......................................... 4 --
---- ----
Subtotal................................................ 722 732
Less: payments due within one year........................ 82 27
---- ----
Total................................................... $640 $705
==== ====
F-31
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND LIQUIDITY (CONTINUED)
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. In October 2000, the 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.
The New Senior Facilities, as amended, consist of:
- A Tranche A Facility providing for initial term loans of $137 million and
of E161 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 quarterly installments ranging
from about $2 million in 2000 to about $17 million in 2005, with the final
installment payable on December 31, 2005. In October we converted
$78 million from dollar-denominated to euro-denominated debt. The
principal payments due in 2001 total $23 million.
- 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. The
principal payments due in 2001 total $4 million.
- A Revolving Facility providing for revolving and swingline loans to, and
the issuance of dollar-denominated letters of credit for the account of,
UCAR Finance and certain of our other subsidiaries in an aggregate
principal and stated amount at any time not to exceed E250 million. 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 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:
- Either 75% or 50% (depending on our leverage ratio, which is the ratio of
our adjusted net debt to our 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.
- 100% of the net proceeds of certain asset sales or incurrence of certain
indebtedness.
- 50% of the net proceeds of the issuance of any UCAR equity securities.
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 secured and guaranteed intercompany loans of the net
proceeds of borrowings under the New Senior Facilities to UCAR Global's
subsidiaries. The obligations of UCAR
F-32
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND LIQUIDITY (CONTINUED)
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.
UCAR, UCAR Global and each of UCAR Global's subsidiaries has guaranteed,
with certain exceptions, the obligations of UCAR Global's subsidiaries under the
intercompany loans, except that our foreign subsidiaries have not guaranteed
intercompany loan obligations of our U.S. subsidiaries.
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 interest rates, as amended, 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. At December 31, 2000, the interest
rates on outstanding debt under the New Senior Facilities was: Tranche A euro
Facility, 7.7%; Tranche A dollar Facility, 9.3%; Tranche B Facility, 9.6%; and
Revolving Facility, 9.4%. The weighted average interest rate on the New Senior
Facilities was 9.1% during 2000.
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 significant covenants that,
among other things, restrict our ability to sell assets, incur additional
indebtedness, repay or refinance other debt or amend other debt instruments,
create liens on assets, enter into leases, investments or acquisitions, engage
in mergers or consolidations, make capital expenditures, make dividend payments
to UCAR, pay intercompany debt owed to UCAR, engage in transactions with
affiliates, or pay dividends or make other restricted payments and that
otherwise 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 Graftech and may also distribute the capital stock of Graftech to
UCAR. In addition, we are required to comply with specified minimum interest
coverage and maximum leverage ratios, which become more restrictive over time,
beginning September 30, 2001.
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 applicable covenants; failure to pay when due, or
F-33
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND LIQUIDITY (CONTINUED)
other defaults 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.
Under the New Senior Facilities, UCAR is 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.
UCAR Global is, however, also permitted to pay dividends to UCAR of up to
$15 million for the purpose of making an investment in Graftech and may also
distribute the capital stock of Graftech to UCAR. Payments due in the aggregate
on the Tranche A and B Facilities are $65 million in 2002 and 2003; $76 million
in 2004 and 2005; and $165 million in 2006 and 2007.
We are highly leveraged and, as discussed in Note 14, have substantial
obligations in connection with antitrust investigations, lawsuits and claims. We
had total debt of $735 million and a stockholders' deficit of $316 million at
December 31, 2000. Our leverage and obligations, as well as changes in
conditions affecting our industry, changes in global and regional economic
conditions and other factors, have adversely impacted our recent operating
results.
We use, and are dependent on, funds available under our revolving credit
facility, including continued compliance with the financial covenants under the
New Senior Facilities, as well as monthly or quarterly cash flow from operations
as our primary sources of liquidity.
Our high leverage and substantial obligations in connection with antitrust
investigations, lawsuits and claims could have a material impact on our
liquidity. Cash flow from operations services payment of our debt and these
obligations, thereby reducing funds available to us for other purposes. Our
leverage and these obligations make us more vulnerable to economic downturns or
in the event that these obligations (including any fine to be assessed by the
antitrust authority of the European Union) are greater or timing of payment is
sooner than expected.
Our ability to service our debt, as it comes due, including maintaining
compliance with the covenants under the New Senior Facilities, and to meet these
and other obligations as they come due is dependent on our future financial and
operating performance. This performance, in turn is subject to various factors,
including certain factors beyond our control, such as changes in conditions
affecting our industry, changes in global and regional economic conditions,
changes in interest and currency exchange rates, developments in antitrust
investigations, lawsuits and claims involving us and inflation in raw material,
energy and other costs. While there is no requirement as to when fines, if any,
must be assessed, we believe that it is likely that fines related to the EU
Competition Authority will be assessed during 2001.
Even if we are able to meet our debt service and other obligations when due,
we may not be able to comply with the financial covenants under the New Senior
Facilities. A failure to so comply, unless waived by the lenders thereunder,
would be a default thereunder. This would permit the lenders to accelerate the
maturity of substantially all of our debt. It would also permit them to
terminate their commitments to extend credit under our revolving credit
facility. This would have an immediate material adverse effect on our liquidity.
If we were unable to repay our debt to the lenders, the lenders
F-34
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND LIQUIDITY (CONTINUED)
could proceed against the collateral securing the New Senior Facilities and
exercise all other rights available to them.
The New Senior Facilities require us to, among other things, comply with
specified minimum interest coverage and maximum leverage ratios. In
October 2000, we obtained an amendment to the New Senior Facilities. The
amendment, among other things, increased the maximum leverage ratio permitted
thereunder through June 30, 2001. Beginning September 30, 2001, the ratios
become more restrictive. At December 31, 2000, we were in compliance with those
financial covenants.
While our revolving credit facility provides for maximum borrowings of up to
E250 million, our current ability to borrow under this facility is effectively
substantially less than the maximum due to the impact additional borrowings
under this facility would have on our compliance with the maximum leverage ratio
permitted under the New Senior Facilities.
While no assurances can be made, we believe we will comply with the
covenants under the New Senior Facilities through 2001. If we subsequently
believe that we will not continue to comply with such covenants, we will seek an
appropriate waiver or amendment from the lenders thereunder. There can be no
assurance that we will be able to obtain such waiver or amendment on acceptable
terms or at all.
PRIOR SENIOR FACILITIES
The Prior Senior Facilities consisted of:
- A Tranche A Facility in the initial amount of $270 million consisted of:
(i) a Tranche A Letter of Credit Facility providing for the initial
issuance of up to $225 million (including reserves for interest rate and,
if applicable, currency exchange rate fluctuations) of U.S.
dollar-denominated letters of credit for the purpose of supporting U.S.
dollar-denominated or foreign-currency denominated loans to certain
foreign subsidiaries under facilities arranged with local lending
institutions; (ii) a Tranche A Term Loan Facility provided for initial
term loans of $45 million to UCAR Global; and (iii) a Tranche A
Reimbursement Loan Facility to reimburse drawings under those letters of
credit or refinance those local facilities. The Tranche A Facility
amortized in quarterly installments over four years, commencing March 31,
1998, with installments ranging from $50 million in 1998 to $85 million in
2001, with the final installment payable on December 31, 2001.
- A Tranche B Facility provided for initial term loans of $120 million to
UCAR Global. The Tranche B Facility amortized over five years, commencing
March 31, 1998, with nominal quarterly installments during the first four
years, and quarterly installments aggregating $116 million in 2002, with
the final installment payable on December 31, 2002.
- A Tranche C Facility provided for initial term loans of $125 million to
UCAR Global and $85 million to our Swiss subsidiary. The Tranche C
Facility was added in 1998. The Tranche C Facility amortized over five
years, commencing March 31, 1999, with nominal quarterly installments
during the first four years, and quarterly installments aggregating
$206 million in 2003, with the final installment payable on December 31,
2003.
- A Revolving Facility provided for revolving and swingline loans to, and
the issuance of U.S. dollar-denominated letters of credit for the account
of UCAR Global and certain other U.S. subsidiaries in an aggregate
principal and stated amount at any time not to exceed $250 million.
F-35
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT AND LIQUIDITY (CONTINUED)
The Revolving Facility was scheduled to terminate on December 31, 2001. As
a condition to each borrowing under the Revolving Facility, we were
required to represent, among other things, that the sum of payments and
reserves relating to specified litigation liabilities had not and was not
reasonably expected to exceed $400 million.
The weighted-average interest rate on the Prior Senior Facilities was 7.08%
during 1998 and 9.65% during 1999.
SUBORDINATED NOTES
UCAR Global redeemed $200 million aggregate principal amount of Subordinated
Notes in whole as part of our debt recapitalization on February 22, 2000 at a
redemption price of 104.5% of the principal amount plus accrued and unpaid
interest. Interest on the Subordinated Notes was payable semiannually at the
rate of 12% per annum. The Subordinated Notes were to mature on January 15,
2005.
EXTRAORDINARY ITEMS
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.
In November 1998, we recorded a charge of $11 million ($7 million after tax)
related to the refinancing of the Prior Senior Facilities. The extraordinary
charge represents $8 million of fees paid to amend the Prior Senior Facilities
and the write-off of $3 million of deferred debt issuance costs.
OTHER
Our weighted-average interest rate on short-term borrowings outstanding was
9.5% at December 31, 1999 and 9.4% at December 31, 2000.
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 amounts, which secure repayment of the debt.
Since we have the legal right to set off the deposited funds against the debt,
and the intent to do so, such amounts have been netted and are not reflected
separately in the Consolidated Balance Sheets.
F-36
\
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES
The following table summarizes the U.S. and non-U.S. components of income
(loss) before provision for income taxes, minority interest and extraordinary
items:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
U.S....................................................... $(39) $(84) $(69)
Non-U.S................................................... 43 130 105
---- ---- ----
$ 4 $ 46 $ 36
==== ==== ====
Total income taxes were allocated as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Income from operations.................................... $ 32 $ 1 $ 10
Extraordinary items....................................... (4) -- (8)
---- ---- ----
$ 28 $ 1 $ 2
==== ==== ====
Income tax expense attributable to income from operations consists of:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
U.S. federal income taxes:
Current.................................................. $10 $ (8) $ 8
Deferred................................................. (4) (23) (23)
--- ---- ----
$ 6 $(31) $(15)
=== ==== ====
Non-U.S. income taxes
Current.................................................. $46 $ 35 $ 27
Deferred................................................. (20) (3) (2)
--- ---- ----
$26 $ 32 $ 25
=== ==== ====
We have an income tax exemption from the Brazilian government on income
generated from graphite electrode and cathode production through 2006 and 2005,
respectively. The exemption reduced the net expense associated with income taxes
by $5 million in each of 1998 and 1999 and $2 million in 2000.
In 1998, we obtained an income tax exemption from the Swiss government. The
exemption reduced the net expense associated with income taxes by $13 million in
1998, $9 million in 1999 and $8 million in 2000.
F-37
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
Income tax expense attributable to income from operations differed from the
amounts computed by applying the U.S. federal income tax rate of 35% to pretax
income from operations as a result of the following:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Tax at statutory U.S. federal rate........................ $ 2 $ 16 $ 13
Nondeductible (deductible) portion of estimated
liabilities and expenses associated with antitrust
investigations and related lawsuits and claims.......... (18) -- --
Nondeductible portion of impairment losses................ 19 -- --
Nondeductible imputed interest associated with antitrust
fines................................................... 2 2 1
Other taxes related to restructuring charges.............. 9 -- --
U.S. operating loss....................................... (32) 32 --
Impact of dividend of foreign earnings.................... 8 -- 22
Foreign operating losses with no benefit provided......... 9 (9) --
Non U.S. tax exemptions and holidays...................... (18) (14) (10)
Adjustments to deferred tax asset valuation allowance..... 55 (17) (20)
Other..................................................... (4) (9) 4
---- ---- ----
$ 32 $ 1 $ 10
==== ==== ====
The significant components of deferred income tax expense attributable to
income from operations are as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Deferred tax expense (exclusive of the effects of changes
in the valuation allowance described below.............. $(79) $ (9) $ (5)
Increase (decrease) in beginning of the year Balance of
the valuation allowance for Deferred tax assets......... 55 (17) (20)
---- ---- ----
$(24) $(26) $(25)
==== ==== ====
F-38
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 2000 are as follows:
AT DECEMBER 31,
-----------------------
1999 2000
-------- --------
(DOLLARS IN
MILLIONS)
Deferred tax assets:
Fixed assets.............................................. $ 11 $ 9
Estimated liabilities and expenses associated with
antitrust investigations and related lawsuits and
claims.................................................. 10 3
Postretirement and other employee benefits................ 56 55
Foreign tax credit and other carryforwards................ 62 53
Provision for scheduled plant closings and other
Restructurings.......................................... 12 11
Other..................................................... 31 27
---- ----
Total gross deferred tax assets......................... 182 158
Less: valuation allowance............................... (41) (21)
---- ----
Deferred tax assets................................... $141 $137
==== ====
Deferred tax liabilities:
Fixed assets.............................................. $ 64 $ 55
Inventory................................................. 11 8
Other..................................................... 7 4
---- ----
Total gross deferred tax liabilities.................... 82 67
---- ----
Net deferred tax asset................................ $ 59 $ 70
==== ====
Deferred income tax assets and liabilities are classified on a net current
and non-current basis within each tax jurisdiction. Net deferred income tax
assets are included in prepaid expenses in the amount of $17 million at
December 31, 1999 and $14 million at December 31, 2000 and in other assets in
the amount of $81 million at December 31, 1999 and $97 million at December 31,
2000. Net deferred tax liabilities are also included in accrued income and other
taxes in the amount of $6 million at December 31, 1999 and $5 million at
December 31, 2000 and separately stated as deferred income taxes in the amount
of $33 million at December 31, 1999 and $36 million at December 31, 2000. During
the 2000 fourth quarter, we entered into an intercompany sale leaseback
transaction, which allowed for utilization of foreign tax credits. This
transaction resulted in a tax effect of the book gain of $22 million being
classified as a deferred charge, which is included in other assets.
The net change in the total valuation allowance for 2000 was a decrease of
$20 million. The change results from our assessment of the increased likelihood
of our ability for using the deferred tax assets associated with certain U.S.
foreign tax credit carryforwards based on a re-assessment in 2000 of our U.S.
tax profile and associated tax planning strategies.
We have total excess foreign tax credit carryforwards of $42 million at
December 31, 2000. Of these tax credit carryforwards, $13 million expire in
2003, $25 million expire in 2004 and $4 million expire in 2005. On a recomputed
basis, we used foreign tax credits to reduce U.S. current tax liabilities in the
amount of $34 million in 1998, nil in 1999 and $61 million in 2000. Based upon
the level of
F-39
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) INCOME TAXES (CONTINUED)
historical taxable income and projections for future taxable income over the
periods during which these credits are utilizable, we believe it is more likely
than not we will realize the benefits of these deferred tax assets net of the
existing valuation allowances at December 31, 2000. Specifically, it is our
intention to pursue tax planning strategies, repatriation strategies and one
time events in order to utilize our excess foreign tax credits prior to their
expiration.
U.S. income taxes have not been provided on undistributed earnings of
foreign subsidiaries. Our intention is to reinvest these undistributed earnings
indefinitely. To the extent that our circumstances change or future earnings are
repatriated, we will provide for income tax on the earnings of the effected
foreign subsidiaries. We believe that any U.S. tax on repatriated earnings would
be substantially offset by U.S. foreign tax credits.
(7) OTHER (INCOME) EXPENSE, NET
The following table presents an analysis of other (income) expense, net:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Interest income............................................ $(14) $(8) $(6)
Currency (gains) losses.................................... (2) (2) (4)
Bank fees.................................................. 3 3 3
Amortization of goodwill................................... 1 1 2
(Gain) loss on sale of assets.............................. 2 (3) 2
Insurance related gains.................................... -- -- (5)
Power of One initiative consulting fees.................... -- -- 4
Graftech initial public offering expenses.................. -- -- 2
Global integration project consulting fees................. 9 (1) --
Former parent company lawsuit legal expenses............... -- -- 3
Other...................................................... 9 1 (1)
---- --- ---
Total other (income) expense, net.......................... $ 8 $(9) $--
==== === ===
(8) INTEREST EXPENSE
The following table presents an analysis of interest expense:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Interest incurred on debt................................... $66 $77 $69
Amortization of debt issuance costs......................... 2 2 2
Interest imputed on antitrust fine.......................... 5 5 4
--- --- ---
Total interest expense.................................... $73 $84 $75
=== === ===
F-40
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SUPPLEMENTARY BALANCE SHEET DETAIL
AT DECEMBER 31,
-----------------------
1999 2000
-------- --------
(DOLLARS IN MILLIONS)
Notes and accounts receivable:
Trade..................................................... $ 139 $ 105
Other..................................................... 37 20
------ ------
176 125
Allowance for doubtful accounts........................... (5) (4)
------ ------
$ 171 $ 121
====== ======
Property, plant and equipment:
Land and improvements..................................... $ 47 $ 41
Buildings................................................. 170 170
Machinery and equipment and other......................... 803 757
Construction in progress.................................. 51 37
------ ------
$1,071 $1,005
====== ======
Other assets:
Goodwill (net)............................................ $ 12 $ 9
Deferred income taxes..................................... 81 97
Benefits protection trust................................. 2 2
Long-term receivables..................................... 8 5
Deferred charge related to sale leaseback................. -- 22
Capitalized bank fees..................................... 7 13
Other..................................................... 5 8
------ ------
$ 115 $ 156
====== ======
Accounts payable:
Trade..................................................... $ 67 $ 92
Other..................................................... 13 7
------ ------
$ 80 $ 99
====== ======
F-41
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) SUPPLEMENTARY BALANCE SHEET DETAIL (CONTINUED)
AT DECEMBER 31,
-----------------------
1999 2000
-------- --------
(DOLLARS IN MILLIONS)
Other accrued liabilities:
Accrued accounts payable.................................. $ 14 $ 13
Payrolls.................................................. 5 4
Restructuring............................................. 28 26
Employee compensation and benefits........................ 30 14
Liabilities and expenses associated with antitrust
investigations and related lawsuits and claims.......... 27 24
Other..................................................... 10 9
------ ------
$ 114 $ 90
====== ======
Other long-term obligations:
Postretirement benefits................................... $ 82 $ 83
Employee severance costs.................................. 5 4
Pension and related benefits.............................. 14 20
Liabilities and expenses associated with antitrust
investigations and related lawsuits and claims.......... 104 83
Other..................................................... 19 19
------ ------
$ 224 $ 209
====== ======
The following table presents an analysis of the allowance for doubtful
accounts:
AT DECEMBER 31,
-------------------------
1999 2000
-------- --------
(DOLLARS IN
MILLIONS)
Balance at beginning of year................................ $5 $5
Additions................................................... 1 1
Deductions.................................................. (1) (2)
-- --
Balance at end of year...................................... $5 $4
== ==
F-42
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) LEASES
Lease commitments under non-cancelable operating leases extending for one
year or more will require the following future payments:
(DOLLARS IN MILLIONS)
---------------------
2001........................................................ $4
2002........................................................ 3
2003........................................................ 3
2004........................................................ 2
2005........................................................ 2
After 2005.................................................. 1
Total lease and rental expenses under noncancelable operating leases
extending one month or more were $5 million in each of 1998 and 1999 and
$4 million in 2000.
(11) BENEFIT PLANS
RETIREMENT PLANS AND POSTRETIREMENT BENEFIT PLANS
Until February 25, 1991, we participated in the U.S. retirement plan of
Union Carbide Corporation ("Union Carbide"). Effective February 26, 1991, we
formed our own U.S. retirement plan which covers substantially all U.S.
employees. Retirement and death benefits related to employee service through
February 25, 1991 are covered by the Union Carbide plan. Benefits paid by the
Union Carbide plan are based on final average pay through February 25, 1991,
plus salary increases (not to exceed 6% per year) until January 26, 1995 when
Union Carbide ceased to own at least 50% of the equity of UCAR. All our
employees who retired prior to February 25, 1991 are covered under the Union
Carbide plan. Pension benefits under our plan are based primarily on years of
service and compensation levels prior to retirement. Net pension cost for our
plan was $7 million in 1998, $6 million in 1999 and $7 million in 2000.
Pension coverage for employees of foreign subsidiaries is provided, to the
extent deemed appropriate, through separate plans. Obligations under such plans
are systematically provided for by depositing funds with trustees, under
insurance policies or by book reserves. Net pension costs for plans of foreign
subsidiaries amounted to $7 million in 1998 (which includes a $7 million
curtailment loss for the Canadian pension plan recorded in conjunction with the
Company's restructuring charge), $2 million in 1999 and nil in 2000.
F-43
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) BENEFIT PLANS (CONTINUED)
The components of our consolidated net pension costs are as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Service cost................................................ $ 8 $ 7 $ 7
Interest cost............................................... 13 14 15
Expected return on assets................................... (14) (14) (15)
Amortization................................................ (1) 1 --
Settlement (gain) loss...................................... 1 (1) --
Curtailment loss............................................ 7 1 --
--- --- ---
Net pension cost.......................................... $14 $ 8 $ 7
=== === ===
We also provide health care and life insurance benefits for eligible retired
employees. These benefits are provided through various insurance companies and
health care providers. We accrue the estimated net postretirement benefit costs
during the employees' credited service periods. The components of our
consolidated net postretirement benefit costs are as follows:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS)
Service cost................................................ $3 $2 $2
Interest cost............................................... 5 6 6
Amortization of prior service cost.......................... (3) (2) (1)
-- -- --
Net postretirement benefit cost........................... $5 $6 $7
== == ==
F-44
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) BENEFIT PLANS (CONTINUED)
The reconciliation of beginning and ending balances of benefit obligations
under, and fair value of assets of, all of our pension and postretirement
benefit plans, and the funded status of the plans, are as follows:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
AT DECEMBER 31, AT DECEMBER 31,
----------------------- -----------------------
1999 2000 1999 2000
-------- -------- -------- --------
(DOLLARS IN MILLIONS)
Changes in benefit obligation:
Net benefit obligation at beginning of year... $ 199 $195 $ 84 $ 75
Service cost.................................. 7 7 2 2
Interest cost................................. 14 15 5 6
Plan amendments............................... 1 -- (5) --
Foreign currency exchange rate changes........ (3) (7) -- (1)
Actuarial (gain) loss......................... (6) 7 (5) 7
Curtailment................................... -- (1) -- --
Settlement.................................... (8) (1) -- --
Gross benefits paid........................... (9) (10) (6) (6)
------ ---- ---- ----
Net benefit obligation at end of year......... $ 195 $205 $ 75 $ 83
====== ==== ==== ====
Changes in plan assets:
Fair value of plan assets at beginning of
year........................................ $ 174 $191 $ -- $ --
Actual return on plan assets.................. 27 -- -- --
Foreign currency exchange rate changes........ (2) (8) -- --
Employer contributions........................ 9 7 6 5
Participants contributions.................... -- -- -- 1
Settlement.................................... (8) (1) -- --
Gross benefits paid........................... (9) (10) (6) (6)
------ ---- ---- ----
Fair value of plan assets at end of year...... $ 191 $179 $ -- $ --
====== ==== ==== ====
Reconciliation of funded status:
Funded status at end of year.................. $ (4) $(27) $(75) $(83)
Unrecognized net transition obligation
(asset)..................................... (6) (4) -- --
Unrecognized prior service cost............... 1 1 (4) (3)
Unrecognized net actuarial (gain) loss........ (18) 3 (3) 3
------ ---- ---- ----
Net amount recognized at end of year........ $ (27) $(27) $(82) $(83)
====== ==== ==== ====
F-45
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) BENEFIT PLANS (CONTINUED)
Assumptions used to determine net pension costs, pension projected benefit
obligation, net postretirement benefit costs and postretirement benefits
projected benefit obligation are as follows:
POSTRETIREMENT
PENSION BENEFITS BENEFITS
AT DECEMBER 31, AT DECEMBER 31,
----------------------- -----------------------
1999 2000 1999 2000
-------- -------- -------- --------
Weighted average assumptions as of Measurement
date:
Discount rate............................... 7.67% 7.44% 8.06% 7.69%
Expected return on plan assets.............. 8.45% 8.59% N/A --
Rate of compensation increase............... 5.16% 3.93% 5.25% 4.01%
Health care cost trend on covered charges:
Initial................................... N/A N/A 8.13% 8.04%
Ultimate.................................. N/A N/A 5.76% 5.80%
Years to ultimate......................... N/A N/A 6 6
Assumed health care cost trend rates have a significant effect on the
amounts reported for net postretirement benefits. A one-percentage-point change
in the health care cost trend rate would change the accumulated postretirement
benefits net benefit obligation by approximately $5 million at December 31, 1999
and December 31, 2000 and change net postretirement benefit costs by
approximately $1 million for both 1999 and 2000.
OTHER NON-QUALIFIED PLANS
Since January 1, 1995, we have established various unfunded, non-qualified
supplemental retirement and deferred compensation programs for certain eligible
employees. We established benefits protection trusts (the "Trust") to partially
provide for the benefits of employees participating in these plans. At both
December 31, 1999, and 2000, the Trust had assets of approximately $2 million,
which are included in UCAR's Annual Reportother assets on Form 10-Kthe Consolidated Balance Sheets.
SAVINGS PLAN
Our employee savings plan provides eligible employees the opportunity for
long-term savings and investment. Participating employees can contribute 1.0% to
7.5% of employee compensation as basic contributions and an additional 0.5% to
10.0% of employee compensation as supplemental contributions. For 1999 and 2000,
we contributed on behalf of each participating employee an amount equal to 50%
of the year endedemployee's basic contribution. We contributed $2 million in each of 1998,
1999 and 2000.
INCENTIVE PLANS
In 1998, we implemented a global profit sharing plan for our worldwide
employees. This plan is based on our global financial performance. The cost for
this plan was $10 million in 1998, nil in 1999 and $2 million in 2000.
F-46
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) RESTRUCTURING PLAN
In 2000 fourth quarter, we recorded a charge of $4 million in connection
with a corporate restructuring, mainly for severance and related benefits
associated with a workforce reduction of 85 people. The functional areas
affected include finance, accounting, sales, marketing and administration.
In 2000 first quarter, we recorded a restructuring charge of $6 million in
connection with a restructuring of our graphite specialties business. Key
elements of the restructuring included 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 severance
costs for 65 employees, costs for demolition of selected buildings, and related
environmental costs. During 2000, we paid $0.9 million in severance costs. Based
on subsequent developments in the 2000 third quarter, we decided not to demolish
those buildings. Therefore, we reversed $4 million of the charge that related to
demolition and related environmental costs.
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 eliminated 371
administrative and manufacturing positions. The $86 million charge consisted of
a write-off of $29 million of assets and a reserve of $57 million.
During 1999, it was determined that plant closure activities were estimated
to result in lower cash costs than originally anticipated. These savings
represent lower net anticipated demolition costs resulting primarily from the
outsourcing of a majority of the planned demolition at our Canadian plant and,
to a lesser extent, lower severance related costs. These developments resulted
in a net reduction of the restructuring cost estimate of $6 million in the 1999
third quarter.
Our German plant ceased production activities in 1998. Our Canadian plant
ceased production activities in April 1999. In addition, the relocation of our
corporate headquarters to Nashville, Tennessee was completed during 1999.
F-47
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(12) RESTRUCTURING PLAN (CONTINUED)
The following table summarizes activity relating to the accrued expense in
connection with the restructuring charges.
PLANT SHUTDOWN POST
SEVERANCE AND AND RELATED MONITORING AND
RELATED COSTS COSTS RELATED COSTS TOTAL
------------- -------------- -------------- --------
(DOLLARS IN MILLIONS)
Restructuring charges in 1998......... $30 $18 $9 $57
Payments in 1999...................... (16) (3) (4) (23)
Change in estimate and impact of
currency rate charges in 1999....... (1) (5) -- (6)
--- --- -- ---
Balance at December 31, 1999.......... 13 10 5 28
--- --- -- ---
Restructuring charge in 2000.......... 6 3 1 10
Payments in 2000...................... (5) (1) (1) (7)
Change in estimate and impact of
currency rate changes in 2000....... (1) (3) (1) (5)
--- --- -- ---
Balance at December 31, 2000.......... $13 $ 9 $4 $26
=== === == ===
The restructuring accrual is included in other accrued liabilities on the
Consolidated Balance Sheets.
(13) MANAGEMENT COMPENSATION AND INCENTIVE PLANS
STOCK OPTIONS
We have adopted several stock option plans. The aggregate number of shares
reserved under the plans since their initial adoption was 9,500,000 at
December 31, 1996, have been incorporated by reference in this Prospectus1999 and 11,000,000 at December 31, 2000. The plans permit options
to be granted to employees and, in the Registration Statementcase of one plan since March 1998, also
to non-employee directors.
In 1995, we granted 12-year options to management to purchase 4,761,000
shares at an exercise price of $7.60 per share, of which options for 3,967,400
shares vested fully at the time of our initial public offering, and the balance
were performance options, one half of which were to vest in relianceeach of 1998 and
1999 on achievement of designated EBITDA targets. In December 1997, UCAR's Board
of Directors accelerated the vesting of the 1998 performance options. We did not
achieve the 1999 performance targets and, accordingly, the outstanding 1999
performance options were cancelled.
In 1996, we granted 10-year options to mid-management to purchase 960,000
shares at an exercise price of $35.00 per share, and granted additional 10-year
options to mid-management to purchase 4,000 shares at an exercise price of
$40.44 per share. In 1997, we granted 10-year options to mid-management to
purchase 61,500 shares at an exercise price of $39.31 per share. The options
vest eight years from the grant date. Accelerated vesting occurs if the market
price of the common stock equals or exceeds specified amounts. At December 31,
2000, 458,350 of such options were fully vested.
In 1997, we granted fully vested 10-year options to management to purchase
155,000 shares at an exercise price of $37.59 per share. At December 31, 2000
all of these options were fully vested.
F-48
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) MANAGEMENT COMPENSATION AND INCENTIVE PLANS (CONTINUED)
In 1998, we granted 10-year options to management to purchase shares as
follows:
- Options for 641,000 shares were granted to certain officers and directors
at exercise prices ranging from $29.22 to $34.36 per share. Options for
320,000 shares vest one year from the grant date, options for 221,000
shares vest two years from the grant date and options for 100,000 shares
vest three years from the grant date. At December 31, 2000, 541,000 of
such options were fully vested.
- Options for 1,935,000 shares were granted to certain officers and
management at exercise prices ranging from $15.50 to $17.06 per share.
Options for 17,000 shares vested on the grant date, options for 628,000
shares vest after one year from the grant date, and all remaining options
vest seven years from the grant date, subject to accelerated vesting if
the market price for the common stock equals or exceeds specified amounts.
At December 31, 2000, 1,861,396 of such options were fully vested.
In 1999, we granted options to management to purchase shares as follows:
- Options for 409,000 shares were issued to certain officers, management and
directors at exercise prices ranging from $14.13 to $25.81 per share.
Options for 45,359 shares vested on the grant date, options for 274,101
shares vest one year from the grant date, and all remaining options vest
seven years from the grant date, subject to accelerated vesting if the
market price for the common stock equals or exceeds specified amounts. At
December 31, 2000, 316,195 of such options were fully vested.
In 2000, we granted options to management to purchase shares as follows:
- Options for 2,615,511 shares were issued to certain officers and
management at exercise prices ranging from $8.56 to $17.31 per share.
Options for 2,070,100 shares vest two years from the grant date, options
for 200,000 shares vest five years from the grant date, 175,901 shares
vest one year from the grant date, options for 12,200 vested at the grant
date, and all remaining options vest seven years from the grant date,
subject to accelerated vesting if the market price for the common stock
equals or exceeds specified amounts. At December 31, 2000, 12,200 of such
options were fully vested.
In 1998, we adopted stock purchase programs under which management may
purchase shares at fair market value on the date of purchase. Management
purchased stock were 201,373 shares in 1998, 26,804 shares in 1999 and 18,556
shares in 2000.
We apply APB 25 in accounting for our stock-based compensation expense
plans. Accordingly, no compensation expense has been recognized for our time
vesting options. If compensation expense for our stock-based compensation plans
was determined by the fair value method prescribed by SFAS 123,
F-49
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) MANAGEMENT COMPENSATION AND INCENTIVE PLANS (CONTINUED)
our net income (loss) and net income (loss) per share would have been reduced or
increased to the pro forma amounts indicated below:
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
-------- -------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
Net income (loss):
As reported.......................................... $ (37) $ 42 $ 10
Pro forma............................................ (41) 40 9
Diluted net income (loss) per share:
As reported.......................................... (0.83) 0.91 0.22
Pro forma............................................ $(0.91) $0.87 $0.20
A summary of the status of our stock-based compensation plans at the dates
and for the period indicated is presented below:
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1999 2000
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- -------- --------- -------- ---------
(SHARES IN THOUSANDS)
Time vesting options:
Outstanding at beginning of Year...... 3,324 $16.98 5,826 $18.48 5,277 $20.15
Granted at market price............... 1,884 17.06 410 19.91 2,615 9.53
Granted at price exceeding Market..... 621 32.37 -- -- -- --
Granted at price below market........... 51 15.50 -- -- -- --
Exercised............................. (10) 7.60 (16) 13.85 (16) 13.81
Forfeited/canceled.................... (44) 32.84 (943) 10.19 (34) 32.37
------ ------ ------
Outstanding at end of year.......... 5,826 18.48 5,277 20.15 7,842 16.55
====== ====== ======
Options exercisable at year end....... 2,841 13.76 4,176 15.32 4,710 18.65
Weighted-average fair value of Options
granted during year:
At market........................... $ 8.53 $11.64 $ 5.97
Exceeding market.................... 12.49 -- --
Below market........................ 7.99 -- --
Performance vesting options:
Outstanding at beginning of Year...... 1,174 $ 7.60 938 $ 7.60 546 $ 7.60
Granted............................... -- -- -- -- -- --
Exercised............................. (45) 7.60 (3) 7.60 (22) 7.60
Forfeited/canceled.................... (191) 7.60 (389) 7.60 (123) 7.60
====== ====== ======
Outstanding at end of year.......... 938 7.60 546 7.60 401 7.60
====== ====== ======
Options exercisable at year end....... 566 $ 7.60 428 $ 7.60 401 $ 7.60
F-50
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) MANAGEMENT COMPENSATION AND INCENTIVE PLANS (CONTINUED)
The fair value of each stock option is estimated on the grant date using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1998, 1999 and 2000, respectively: dividend yield of
0.0% for all years; expected volatility of 35% in 1998, 45% in 1999 and 50% in
2000; risk-free interest rates of 4.9% in 1998, 5.4% in 1999 and 5.5% in 2000;
and expected lives of 7 years in 1998 and 8 years in 1999 and 2000.
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS EXERCISABLE
-----------------------
OPTIONS OUTSTANDING WEIGHTED-
WEIGHTED-AVERAGE AVERAGE
NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES EXERCISABLE PRICES
- ------------------------ ----------- ------------------- ---------------- ----------- ---------
(SHARES IN THOUSANDS)
Time vesting options:
$7.60 3,530 8 years $ 8.19 1,378 $ 7.61
$14.13 to $18.69 2,579 8 years 16.54 2,122 17.06
$22.06 to $29.22 157 8 years 25.45 67 26.25
$30.59 to $40.44 1,576 6 years 34.42 1,143 34.46
----- -----
7,842 8 years $16.55 4,710 $18.65
===== =====
Performance vesting options:
$7.60 401 6 years $ 7.60 401 $ 7.60
===== =====
OTHER
In 1998, we entered into a five-year employment agreement with our current
president, chief executive officer and chairman of the board.
In 1998, we adopted a loan program under which management borrowed
approximately $3 million in 1998 and less than $1 million in 1999 and 2000.
In 1998, we adopted stock purchase programs under which management may
purchase shares at fair market value on the date of purchase. Management
purchased 201,373 shares in 1998, 26,804 shares in 1999 and 18,556 shares in
2000.
(14) CONTINGENCIES
ANTITRUST INVESTIGATIONS
In June 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
F-51
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CONTINGENCIES (CONTINUED)
subpoenas by the DOJ to produce documents relating to, among other things, our
carbon electrode and bulk graphite businesses.
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. In addition, in
April 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 July 23, 1998. 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 DOJ with respect to any other violations of U.S. federal
antitrust law occurring prior to 1998. The payments due in 1998, 1999 and 2000
were timely made. At our request, each of the remaining three payments has been
deferred by one year.
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, export sales Europe, was indicted by
the DOJ on similar charges. We do not intend to reimburse those officers for
their fines or that director, export sales Europe, for any costs or fines he may
incur as a result of such indictment.
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.
Mitsubishi entered a plea of not guilty. In February 2001, a jury found
Mitsubishi guilty of the charge. Mitsubishi has indicated that it intends to
appeal.
In April 1998, we became aware that the Canadian Competition Bureau (the
"Competition Bureau") had 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.
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 of producers and distributors of graphite
electrodes. We have no facilities or employees in Japan. We believe that, among
other things, we have good defenses to any claim that we are subject to the
jurisdiction of the Japanese antitrust 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
F-52
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CONTINGENCIES (CONTINUED)
warning to us, the warning letter issued to the Japanese producers did reference
us as a member of an alleged cartel.
In October 1999, we became aware that the Korean antitrust authority had
commenced an investigation as to whether there had been any violations of Korean
antitrust law by producers and distributors of graphite electrodes. We have no
facilities in Korea. We have received requests for information from the Korean
antitrust authority.
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
their 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. While there is no
requirement as to when fines, if any, must be assessed, we believe that it is
likely that fines will be assessed during 2001. Any such assessment would be
subject to appeal before the Court of First Instance in Luxembourg, although the
fine or collateral security therefor would be payable about three months after
such assessment.
We continue 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 and the
Korean antitrust authorities in their continuing investigations. 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.
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 (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, 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") was certified.
In 1998 and 1999, we and other producers of graphite electrodes were served
by steelmakers in the U.S. 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
F-53
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CONTINGENCIES (CONTINUED)
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 and 2000, we and other producers of graphite electrodes were served
with three complaints commencing three separate civil antitrust lawsuits (the
"foreign customer lawsuits"). The first complaint was filed by about 27
steelmakers and related parties, all but one of whom are located outside the
U.S. The second complaint was filed by about 4 steelmakers, all of whom are
located outside the U.S. The third complaint was filed by a steelmaker who is
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. We
have filed motions to dismiss the first and second complaints.
In 1999 and 2000, we were served with three complaints commencing three
civil antitrust lawsuits (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.
We understand that certain customers in other countries 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.
Through the date hereof, 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. The settlement of the antitrust class action also covers the actual
and potential claims against us by certain foreign customers arising out of
alleged antitrust violations occurring prior to the date of the respective
settlements in connection with the sale of graphite electrodes sourced from the
U.S. Although each settlement is unique, in the aggregate they consist primarily
of current and deferred cash payments with some product credits and discounts.
Through December 31, 2000, all fines and settlement payments due under the
agreements and settlements, an aggregate of $233 million, net, have been timely
paid. Likewise, all fines and settlements due thereunder from January 1, 2001
through the date hereof have been timely paid. We have paid $11 million in
imputed interest related to the DOJ fine to date. As of December 31, 2000, the
aggregate amount of fines and settlement payments remaining due under the
agreements and settlements is approximately $62 million.
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.
F-54
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CONTINGENCIES (CONTINUED)
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 continuing
investigations 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 December 31, 2000, such amount continues to represent our estimate
of these 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.
STOCKHOLDER DERIVATIVE AND SECURITIES CLASS ACTION LAWSUITS
In March 1998, UCAR was served with a complaint commencing a stockholder
derivative lawsuit. 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. 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 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 for 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, 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 expected to incur 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 expected.
LAWSUIT INITIATED BY US AGAINST OUR FORMER PARENTS
In February 2000, we commenced a lawsuit against our former parents,
Mitsubishi and Union Carbide. The other defendants include 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 January 1995,
one of whom was a member of UCAR's Board of Directors and the Board of
F-55
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) CONTINGENCIES (CONTINUED)
Directors of Union Carbide at February 23, 2000. 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. The
defendants have filed motions to dismiss this lawsuit and motions to disqualify
certain of our counsel from representing us in this lawsuit. We are vigorously
opposing those motions. We expect to incur $10 million to $20 million for legal
expenses to pursue this lawsuit through trial.
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
believe that their ultimate disposition will have a material adverse effect on
us.
(15) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated based upon the
reportprovisions of KPMG Peat Marwick LLP,
independent certified public accountants, whichSFAS 128, adopted in 1997, using the following share data:
1998 1999 2000
---------- ---------- ----------
Weighted-average common shares outstanding for
basic calculation.............................. 44,971,598 45,114,278 45,224,204
Add: Effect of stock options..................... -- 1,388,874 589,208
---------- ---------- ----------
Weighted-average common shares outstanding,
adjusted for diluted calculation............... 44,971,598 46,503,152 45,813,412
========== ========== ==========
No outstanding options were considered in the 1998 calculation of
weighted-average common shares outstanding for the diluted calculation as they
were not dilutive due to net losses in the respective periods. The calculation
of weighted average common shares outstanding for the diluted calculation
excludes options for 1,898,657 shares in 1999 and 3,669,498 shares in 2000
because they were not dilutive due to the fact that the exercise prices were
greater than the weighted average market price of the common stock.
(16) STOCKHOLDER RIGHTS PLAN
Effective August 7, 1998, we adopted a Stockholder Rights Plan (the "Rights
Plan"). Under the Rights Plan, one preferred stock purchase right (a "Right")
was distributed as a dividend on each outstanding share of common stock. Each
share of common stock issued after the distribution is incorporatedaccompanied by reference
herein, anda Right.
When a Right becomes exercisable, it entitles the holder to buy one
one-thousandth of a share of a new series of preferred stock for $110. The
Rights are subject to adjustment upon the authorityoccurrence of
such firm as experts in accountingF-56
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(16) STOCKHOLDER RIGHTS PLAN (CONTINUED)
certain dilutive events. The Rights will become exercisable only when a person
or group becomes the beneficial owner of 15% or more of the outstanding shares
of common stock or 10 days after a person or group announces a tender offer to
acquire beneficial ownership of 15% or more of the outstanding shares of common
stock. No certificates representing the Rights will be issued unless the Rights
become exercisable.
Under certain circumstances, holders of Rights, except a person or group
described above and auditing.certain related parties, will be entitled to purchase shares
of common stock at 50% of the price at which the common stock traded prior to
the acquisition or announcement. In addition, if UCAR is acquired after the
Rights become exercisable, the Rights will entitle those holders to buy the
acquiring company's shares at a similar discount.
We are entitled to redeem the Rights for one cent per Right under certain
circumstances. If not redeemed, the Rights will expire on August 7, 2008. For
stockholders who owned more than 15% of the outstanding shares of common stock
on August 7, 1998, the thresholds described above are 22.5% (and not 15%) of the
outstanding shares of common stock.
The reportpreferred stock issuable upon exercise of KPMG Peat Marwick LLP refersRights consists of Series A
Junior Participating Preferred Stock, par value $.01 per share, of UCAR. In
general, each share of that preferred stock will be entitled to a minimum
preferential quarterly dividend declared on the common stock, will be entitled
to a liquidation preference of $110,000 and will have 1,000 votes, voting
together with the common stock.
(17) IMPAIRMENT LOSSES
During August 1998, the Russian economic and business climate experienced
significant adverse change. This change, when considered in 1996conjunction with the
current and historical operating and cash flow losses of our manufacturing
operations in Vyazma, Russia, indicated the need for assessing the
recoverability of the long-lived and intangible assets of these operations. We
estimated future undiscounted cash flows expected to result from the use of the
related assets and concluded they were less than the carrying amount of these
assets. Accordingly, we recorded an impairment loss of $60 million for the
unrecoverable portion of these assets, effectively writing down the carrying
value of these assets to their estimated fair value of $2 million. The
impairment loss affected the graphite electrode business segment and consisted
of $55 million of long-lived assets and $5 million of goodwill.
During late 1999, our graphite specialties business experienced significant
adverse changes in performance due to a decline in demand and prices for
graphite specialties. In addition, performance adversely changed due to delays
in bringing new or improved products to markets. This change indicated the need
for assessing the recoverability of the long-lived assets of this business.
These assets are located primarily at the our plant in Clarksburg, West
Virginia. We estimated the future undiscounted cash flows expected to result
from the use of these assets and concluded they were below the respective
carrying amounts. Accordingly, we recorded an impairment loss of $35 million for
the unrecoverable portion of these assets, effectively writing down the carrying
value of the fixed assets to their estimated fair value of $6 million.
Additionally, an inventory write-down of $8 million was recorded to reduce their
carrying amount to the lower of cost or market. The impairment loss and
inventory write-down affected the graphite and carbon products segment.
F-57
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(17) IMPAIRMENT LOSSES (CONTINUED)
In 2000 third quarter, we recorded an impairment charge of $3 million in
connection with the re-sourcing 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 Company's methodU.S.
The fair value of determining LIFO inventories.
-35-the long-lived assets was calculated on the basis of
discounted estimated future cash flows. Estimates of the discounted future cash
flows are subject to significant uncertainties and assumptions. Accordingly,
actual values could vary significantly from such estimates.
(18) PUBLIC OFFERING OF COMMON STOCK OF GRAFTECH INC.
In July 2000, Graftech filed a registration statement on Form S-1 with the
SEC 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 outstanding shares to
be sold by one of our other subsidiaries. Costs associated with the offering,
including underwriting discounts, legal, accounting, printing and filing fees
and incremental business realignment and separation costs, were expected to be
paid from the gross proceeds of the offering. We postponed the initial public
offering due to market conditions and, as a result, we recorded a charge of
$2 million for cost incurred in connection with this offering in 2000.
F-58
8,000,000 Shares
[LOGO]
JPMORGAN
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
, 2001
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in that jurisdiction. Persons who come into possession of this
prospectus in jurisdictions outside the United States are required to inform
themselves about and to observe any restrictions as to this offering and the
distribution of this prospectus applicable to that jurisdiction.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs andvarious expenses other than
underwriting discounts and commissions, paid or to be paid in connection with the
issuancesale and distribution of the securities being registered.registered, other than
underwriting discounts and commissions. All the amounts shown are estimated,
except the SEC registration fee and the NYSE listing fee.
SEC registration fee.....................................................................fee........................................ $ 99,035.3130,774
NASD filing fee.......................................................................... 30,500.00
Blue Sky qualification fees and expenses (including related legal fees and expenses)..... 10,000.00*fee.................................................... 12,810
Printing and engraving expenses.......................................................... 300,000.00*expenses............................. *
Legal fees and expenses.................................................................. 200,000.00*expenses..................................... *
Accounting fees and expenses............................................................. 100,000.00*
Miscellaneous............................................................................ 60,464.69*
-----------
Total............................................................................... $800,000.00*
-----------
-----------expenses................................ *
Transfer agent and registrar fees and expenses.............. *
Miscellaneous............................................... *
----------
Total..................................................... $ *
==========
- ------------------------------------------
* Estimated.
All expenses of such issuance and distribution willTo be paidprovided by the
registrant, other than the underwriting discounts and commissions relating to
the securities being registered hereby to be sold by the Selling Stockholders
and transfer taxes relating to the sale of the securities registered hereby to
be sold by the Selling Stockholders.amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
'Law'"LAW") provides as follows:
'(a)"(a) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the person in
connection with such action, suit or proceeding if the person acted in good
faith and in a manner the person reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed
to be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had reasonable cause to
believe that the person's conduct was unlawful.
(b) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
II-1
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and
II-1
only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director officer, employee or agentofficer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, hesuch person
shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by himsuch person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made with respect to a person who is a director or officer at the
time of such determination, (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (3)(4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if it shall ultimately be determined that hesuch person is not entitled to be
indemnified by the corporation as authorized in this section. Such expenses
(including attorneys' fees) incurred by former directors and officers or
other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directorscorporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking indemnification
or advancement of expenses may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action
in hissuch person's official capacity and as to action in another capacity
while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against himsuch person and incurred by himsuch person in any such capacity, or
arising out of hissuch person's status as such, whether or not the corporation
would have the power to indemnify himsuch person against such liability under
this section.
(h) For purposes of this section, references to 'the corporation'"the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the
II-2
same position under this section with respect to the resulting or surviving
corporation as hesuch person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to 'other enterprises'"other enterprises"
shall include employee benefit plans; references to 'fines'"fines" shall include
any excise taxes assessed on a person with respect to any employee benefit
plan; and references to 'serving"serving at the request of the corporation'corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner hesuch person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner 'not"not opposed to the best interests of the
corporation'corporation" as referred to in this section.
II-2
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees).'"
Section 102(b)(7) of the Law provides as follows:
'(b)"(b) In addition to the matters required to be set forth in the
certificate of incorporation by subsection (a) of this section, the
certificate of incorporation may also contain any or all of the following
matters:
(7) A provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such provision
shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law;
(iii) under sectionSection 174 of this title; or (iv) for any transaction from
which the director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision becomes
effective. All references in this paragraph to a director shall also be
deemed to refer (x) to a member of the governing body of a corporation
which is not authorized to issue capital stock, and (y) to such other
person or persons, if any, who, pursuant to a provision of the
certificate of incorporation in accordance with Section141(a)Section 141(a) of this
title, exercise or perform any of the powers or duties otherwise
conferred or imposed upon the board of directors by this title.'"
The Companyregistrant maintains a director's and officer's liability insurance
policy which indemnifies directors and officers for certain losses arising from
claims by reason of a wrongful act, as defined therein, under certain
circumstances.
Directors of the registrant who are affiliated with Blackstone may be
entitled to indemnification under the organizational documents or contractual
arrangements of Blackstone.
In addition, in response to this Item 15, the following information is
incorporated by reference: the information included in the description of the
registrant's capital stock contained in the registrant's Registration Statementregistration statement
on Form 8-A dated July 28, 1995, as updated by any amendment or report filed for
the purpose of updating such description; the information included in the
description of the registrant's preferred stock purchase rights contained in the
registrant's registration statement on
II-3
Form 8-A dated September 10, 1998, as updated by any amendment or report filed
for the purpose of updating such description; Articles Tenth and Eleventh of the
Amended and Restated Certificate of Incorporation of the registrant incorporated
by reference as Exhibit 3.14.1 to this Registration Statement; and Article V of the
Amended and Restated By-Laws of the registrant incorporated by reference as
Exhibit 3.2 to this Registration Statement; Section 7 of the Underwriting
Agreement in substantially the form included as Exhibit 1.1 to this Registration
Statement; and Section 7 of the Subscription Agreement in substantially the form
included as Exhibit 1.24.2 to this Registration Statement.
ITEM 16. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a) The exhibits listed in the following table have been filed as part of
this Registration Statement.Exhibits
EXHIBIT
NUMBER DESCRIPTION
OF EXHIBIT
- -------- ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------
1.1** -- Form of Underwriting Agreement 1.2* Form of Subscription Agreement
2.1(1) Recapitalizationamong J.P. Morgan Securities
Inc., Credit Suisse First Boston, Merrill Lynch & Co. and Stock Purchase and Sale Agreement dated as of November 14, 1994 among Union
Carbide Corporation, Mitsubishi Corporation,
UCAR International Inc.
2.1(1) -- Recapitalization and Stock Purchase and Sale Agreement dated
as of November 14, 1994 among Union Carbide Corporation,
Mitsubishi Corporation, UCAR International Inc. and UCAR
International Acquisition Inc. and Guaranty made by
Blackstone Capital Partners II Merchant Banking Fund L.P.
and Blackstone Offshore Capital Partners II Merchant Banking Fund L.P.
and
Blackstone Offshore Capital Partners II L.P.
II-3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------------------------------------------------------------------------------------
2.2(2) -- Amended and Restated Stockholders' Agreement dated as of
February 29, 1996 2.3(1) Form of Management Common Stock Subscription Agreement
2.4(3) Form of Management Pledge and Security Agreement, together with form of Promissory Note
2.5(2) Amendment, Waiver and Release in connection with such Management Common Stock Subscription
Agreements, Management Pledge and Security Agreements and Promissory Notes
2.6(1) Indemnification Agreement dated as of January 26, 1995 among Mitsubishi Corporation, Union Carbide
CorporationBlackstone Capital Partners II
Merchant Banking Fund L.P., Blackstone Offshore Capital
Partners II L.P., Blackstone Family Investment Partnership
II L.P., Chase Equity Associates and UCAR
International Inc.
2.7(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR International Inc. and
UCAR Holdings S.A.
2.8(1) Exchange Agreements made as of January 26, 1995 between UCAR International Inc. and UCAR Holdings II
Inc.
2.9(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR International Inc. and
UCAR Inc.
2.10(1) Exchange Agreement made as of January 26, 1995 between UCAR Carbon Company Inc. and UCAR Holdings
Inc.
2.11(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR Carbon Company Inc. and
UCAR Mexicana, S.A. de C.V.
2.12(1) Exchange Agreement made as of January 26, 1995 between UCAR International Inc. and UCAR Global
Enterprises Inc.
2.13(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR Carbon Company Inc. and
Arapaima s.r.l.
2.14(1) Deed of Purchase and Sale of 528,999 Shares of UCAR Carbon Navarra S.L.
2.15(1)2.3(1) -- Exchange Agreement dated as of December 15, 1993 by and
among Union Carbide Corporation, Union Carbide Chemicals and
Plastics Company Inc., Mitsubishi Corporation and UCAR
International Inc.
2.16(1)2.4(1) -- Stock Purchase and Sale Agreement dated as of November 9,
1990 among Mitsubishi Corporation, Union Carbide Corporation
and UCAR Carbon Company Inc.
2.17(1) [omitted]
2.18(1)2.5(1) -- Letter Agreement dated January 26, 1995 with respect to
termination of the Stockholders' Agreement dated as of
November 9, 1990 among Mitsubishi Corporation, Union Carbide
Corporation and UCAR Carbon Company Inc.
2.6(1) -- Settlement Agreement dated as of November 30, 1993 among
Mitsubishi Corporation, Union Carbide Corporation and UCAR
Carbon Company Inc.
2.19(1)2.7(1) -- Transfer Agreement dated January 1, 1989 between Union
Carbide Corporation and UCAR Carbon Company Inc.
2.20(1)2.8(1) -- Amendment No. 1 to such Transfer Agreement dated
December 31, 1989
2.21(1)1989.
2.9(1) -- Amendment No. 2 to such Transfer Agreement dated as of July 2,
1990
2.22(1)1990.
2.10(1) -- Amendment No. 3 to such Transfer Agreement dated as of
February 25, 1991
2.23(1)1991.
2.11(1) -- Amended and Restated Realignment Indemnification Agreement
dated as of June 4, 1992 among Union Carbide Corporation,
Union Carbide Chemicals and Plastics Company Inc., Union
Carbide Industrial Gases Inc., UCAR Carbon Company Inc. and
Union Carbide Coatings Service Corporation
2.24(1)Corporation.
2.12(1) -- Environmental Management Services and Liabilities Allocation
Agreement dated as of January 1, 1990 among Union Carbide
Corporation, Union Carbide Chemicals and Plastics
Company Inc., UCAR Carbon Company Inc., Union Carbide
Industrial Gases Inc. and Union Carbide Coatings Service
Corporation
2.25(1)Corporation.
2.13(1) -- Amendment No. 1 to such Environmental Management Services
and Liabilities Allocation Agreement dated as of June 4,
19921992.
II-4
EXHIBIT
NUMBER DESCRIPTION
OF EXHIBIT
- -------- ------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------
2.26 [omitted]
2.27 [omitted]
2.28(4)
2.14(4) -- Trade Name and Trademark License Agreement dated March 1,
1996 between Union Carbide Corporation and UCAR Carbon
Technology Corporation
2.29(1)Corporation.
2.15(1) -- Employee Benefit Services and Liabilities Agreement dated
January 1, 1990 between Union Carbide Corporation and UCAR
Carbon Company Inc.
2.30(1)2.16(1) -- Amendment to such Employee Benefit Services and Liabilities
Agreement dated January 15, 1991
2.31(1)1991.
2.17(1) -- Supplemental Agreement to such Employee Benefit Services and
Liabilities Agreement dated February 25, 1991
2.32(1)1991.
2.18(1) -- Letter Agreement dated December 31, 1990 among Union Carbide
Chemicals and Plastics Company Inc., UCAR Carbon
Company Inc., Union Carbide Grafito, Inc. and Union Carbide
Corporation
2.33* Form of Stock RepurchaseCorporation.
2.19(5) -- Share Sale Agreement amongbetween Samancor Limited and UCAR
InternationalCarbon Company Inc., Blackstone Capital Partners II
Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II L.P., Blackstone Family
Investment Partnership II L.P. and Chase Equity Associates, L.P.
3.1(3) dated April 21, 1997.
4.1(3) -- Amended and Restated Certificate of Incorporation of UCAR
International Inc.
3.2(3)4.1(a)(6) -- Certificate of Designations of Series A Junior Participating
Preferred Stock.
4.2(3) -- Amended and Restated By-Laws of UCAR International Inc.
4.1(3) Specimen certificate representing Common Stock, par value $.01 per share,4.2(a)(6) -- Amendment to By-Laws of UCAR International Inc.
4.2(1) Indenture4.3(6) -- Rights Agreement dated as of January 15, 1995 amongAugust 7, 1998 between UCAR
International Inc., UCAR Global Enterprises Inc. and the United States Trust CompanyThe Bank of New York, as Trustee
5.1Rights
Agent.
5.1** -- Opinion of Kelley Drye & Warren LLP regarding the legality of the securities being registered
23.1LLP.
23.1** -- Consent of Kelley Drye & Warren LLP (included in its opinion
filed herewith as Exhibit 5.1).
23.2* -- Consent of KPMG Peat Marwick LLP
24.1LLP.
24.1* -- Powers of Attorney (included on signature page)pages).
- ------------------------------------------
* Filed herewith.
Unless otherwise indicated, all exhibits have been previously filed.** To be filed by amendment.
(1) Incorporated by reference to the Registration Statement of UCAR
International Inc.the registrant
and UCAR Global Enterprises Inc. on forForm S-1 (File(Registration No. 33-84850).
(2) Incorporated by reference to the Annual Report of the registrant ofon
Form 10-K for the year ended December 31, 1995.1995 (File No. 1-13888).
(3) Incorporated by reference to the Registration Statement of the registrant on
Form S-1 (File(Registration No. 33-94698).
(4) Incorporated by reference to the Quarterly Report of the registrant on
Form 10-Q for the quarter ended March 31, 1996.1996 (File No. 1-13888).
(5) Incorporated by reference to the Quarterly Report of the registrant on
Form 10-Q for the quarter ended September 30, 1997 (File No. 1-13888).
(6) Incorporated by reference to the Annual Report of the registrant on
Form 10-K for the year ended December 31, 1998 (File No. 1-13888).
(b) Financial Statement Schedules
All schedules are omitted as the required information is inapplicable or
the information is presented in the Consolidated Financial Statements or related
notes thereto.None.
II-5
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act)Act of
1934) that is incorporated by reference in this
Registration Statementthe registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fideBONA FIDE offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statementregistration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statementregistration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fideBONA FIDE offering thereof.
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OFPursuant to the requirements of the Securities Act of 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORMthe registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 AND HAS DULY CAUSED THIS AMENDMENT TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF DANBURY, STATE OF CONNECTICUT, ON THE 3RD DAY OF
APRIL, 1997.
UCAR INTERNATIONAL INC.
BY: /s/ PETER B. MANCINO
--------------------------------
Title: Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Nashville, Tennessee, on the 26th day of June, 2001.
SIGNATURES TITLE DATE
- ----------------------------------------- ------------------------------------------- ------------------
*UCAR INTERNATIONAL INC.
By: /s/ CORRADO F. DE GASPERIS
-----------------------------------------
Corrado F. De Gasperis
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
AND
CHIEF INFORMATION OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Gilbert E. Playford, Corrado F. DeGasperis and
Karen G. Narwold, and each of them individually, his true and lawful agent,
proxy and attorney-in-fact, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to (i) act on, sign and file with the Securities and Exchange
Commission any and all amendments to this registration statement (which includes
any additional registration statement under Rule 462(b)) together with all
schedules and exhibits thereto, (ii) act on, sign and file with the Securities
and Exchange Commission any and all exhibits to this registration statement and
any and all exhibits and schedules thereto, (iii) act on, sign and file any and
all applications, registration statements, notices, reports and other documents
necessary or appropriate in connection with the registration or qualification
under foreign and state securities laws of the securities described in this
registration statement or any amendment thereto, or obtain an exemption
therefrom, in connection with the offering described therein, and (iv) take any
and all such actions which may be necessary or appropriate in connection
therewith, granting unto such agents, proxies and attorneys-in-fact, and each of
them individually, full power and authority to do and perform each and every act
and thing necessary or appropriate to be done, as approving, ratifying and
confirming all that such agents, proxies and attorneys-in-fact, any of them or
any of his or her or their substitute or substitutes may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities indicated on the 26th day of June, 2001.
SIGNATURE TITLE(S)
--------- --------
/s/ GILBERT E. PLAYFORD Chairman of the Board, Chief Executive
------------------------------------------- Officer, President and Chief April 3, 1997
- ----------------------------------------- Executive Officer
ROBERT P. KRASSDirector (Principal
Gilbert E. Playford Executive Officer)
*/s/ CORRADO F. DE GASPERIS Vice President, Chief Financial Officer and
April 3, 1997
- ----------------------------------------- Treasurer------------------------------------------- Chief Information Officer (Principal Financial
Corrado F. De Gasperis and
WILLIAM P. WIEMELS Accounting Officer)
* Director April 3, 1997
- -----------------------------------------
ROBERT D. KENNEDY
* Director April 3, 1997
- -----------------------------------------
JOHN R. HALL
* Director April 3, 1997
- -----------------------------------------
PETER G. PETERSON
II-7
SIGNATURES TITLE DATE
- ----------------------------------------- ------------------------------------------- ------------------SIGNATURE TITLE(S)
--------- --------
* Director April 3, 1997
- -----------------------------------------
STEPHEN A. SCHWARZMAN
* Director April 3, 1997
- -----------------------------------------
GLENN H. HUTCHINS
* Director April 3, 1997
- -----------------------------------------
HOWARD A. LIPSON
* Director April 3, 1997
- -----------------------------------------/s/ R. EUGENE CARTLEDGE
*By:------------------------------------------- Director
R. Eugene Cartledge
/s/ PETERMARY B. MANCINO
------------------------------------
ATTORNEY-IN-FACTCRANSTON
------------------------------------------- Director
Mary B. Cranston
/s/ JOHN R. HALL
------------------------------------------- Director
John R. Hall
/s/ THOMAS MARSHALL
------------------------------------------- Director
Thomas Marshall
/s/ MICHAEL C. NAHL
------------------------------------------- Director
Michael C. Nahl
II-8
INDEX TOOF EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
OF EXHIBIT
- -------- -------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------
1.1* Form of Underwriting Agreement
1.2* Form of Subscription Agreement
2.1(1) Recapitalization and Stock Purchase and Sale Agreement dated as of November 14, 1994
among Union Carbide Corporation, Mitsubishi Corporation, UCAR International Inc. and
UCAR International Acquisition Inc. and Guaranty made by Blackstone Capital Partners II
Merchant Banking Fund L.P. and Blackstone Offshore Capital Partners II L.P.
2.2(2) Amended and Restated Stockholders' Agreement dated as of February 29, 1996
2.3(1) Form of Management Common Stock Subscription Agreement
2.4(3) Form of Management Pledge and Security Agreement, together with form of Promissory Note
2.5(2) Amendment, Waiver and Release in connection with such Management Common Stock
Subscription Agreements, Management Pledge and Security Agreements and Promissory Notes
2.6(1) Indemnification Agreement dated as of January 26, 1995 among Mitsubishi Corporation,
Union Carbide Corporation and UCAR International Inc.
2.7(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR International
Inc. and UCAR Holdings S.A.
2.8(1) Exchange Agreements made as of January 26, 1995 between UCAR International Inc. and UCAR
Holdings II Inc.
2.9(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR International
Inc. and UCAR Inc.
2.10(1) Exchange Agreement made as of January 26, 1995 between UCAR Carbon Company Inc. and UCAR
Holdings Inc.
2.11(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR Carbon
Company Inc. and UCAR Mexicana, S.A. de C.V.
2.12(1) Exchange Agreement made as of January 26, 1995 between UCAR International Inc. and UCAR
Global Enterprises Inc.
2.13(1) Stock Purchase and Sale Agreement dated as of January 26, 1995 between UCAR Carbon
Company Inc. and Arapaima s.r.l.
2.14(1) Deed of Purchase and Sale of 528,999 Shares of UCAR Carbon Navarra S.L.
2.15(1) Exchange Agreement dated as of December 15, 1993 by and among Union Carbide Corporation,
Union Carbide Chemicals and Plastics Company Inc., Mitsubishi Corporation and UCAR
International Inc.
2.16(1) Stock Purchase and Sale Agreement dated as of November 9, 1990 among Mitsubishi
Corporation, Union Carbide Corporation and UCAR Carbon Company Inc.
2.17(1) [omitted]
2.18(1) Settlement Agreement dated as of November 30, 1993 among Mitsubishi Corporation, Union
Carbide Corporation and UCAR Carbon Company Inc.
2.19(1) Transfer Agreement dated January 1, 1989 between Union Carbide Corporation and UCAR
Carbon Company Inc.
2.20(1) Amendment No. 1 to such Transfer Agreement dated December 31, 1989
2.21(1) Amendment No. 2 to such Transfer Agreement dated as of July 2, 1990
2.22(1) Amendment No. 3 to such Transfer Agreement dated as of February 25, 1991
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- -----------------------------------------------------------------------------------------
2.23(1) Amended and Restated Realignment Indemnification Agreement dated as of June 4, 1992 among
Union Carbide Corporation, Union Carbide Chemicals and Plastics Company Inc., Union
Carbide Industrial Gases Inc., UCAR Carbon Company Inc. and Union Carbide Coatings
Service Corporation
2.24(1) Environmental Management Services and Liabilities Allocation Agreement dated as of
January 1, 1990 among Union Carbide Corporation, Union Carbide Chemicals and Plastics
Company Inc., UCAR Carbon Company Inc., Union Carbide Industrial Gases Inc. and Union
Carbide Coatings Service Corporation
2.25(1) Amendment No. 1 to such Environmental Management Services and Liabilities Allocation
Agreement dated as of June 4, 1992
2.26 [omitted]
2.27 [omitted]
2.28(4) Trade Name and Trademark License Agreement dated March 1, 1996 between Union Carbide
Corporation and UCAR Carbon Technology Corporation
2.29(1) Employee Benefit Services and Liabilities Agreement dated January 1, 1990 between Union
Carbide Corporation and UCAR Carbon Company Inc.
2.30(1) Amendment to such Employee Benefit Services and Liabilities Agreement dated January 15,
1991
2.31(1) Supplemental Agreement to such Employee Benefit Services and Liabilities Agreement dated
February 25, 1991
2.32(1) Letter Agreement dated December 31, 1990 among Union Carbide Chemicals and Plastics
Company Inc., UCAR Carbon Company Inc., Union Carbide Grafito, Inc. and Union Carbide
Corporation
2.33* Form of Stock Repurchase Agreement among UCAR International Inc., Blackstone Capital
Partners II Merchant Banking Fund L.P., Blackstone Offshore Capital Partners II L.P.
Blackstone Family Investment Partnership II L.P. and Chase Equity Associates, L.P.
3.1(3) Amended and Restated Certificate of Incorporation of UCAR International Inc.
3.2(3) Amended and Restated By-Laws of UCAR International Inc.
4.1(3) Specimen certificate representing Common Stock, par value $.01 per share, of UCAR
International Inc.
4.2(1) Indenture dated as of January 15, 1995 among UCAR International Inc., UCAR Global
Enterprises Inc. and the United States Trust Company of New York, as Trustee
5.1 Opinion of Kelley Drye & Warren LLP regarding the legality of the securities being
registered
23.1 Consent of Kelley Drye & Warren LLP (included in Exhibit 5.1)
23.2* -- Consent of KPMG Peat Marwick LLP
24.1 PowersLLP.
24.1* -- Power of Attorney (included on signature page)pages).
- ------------------------------------------
* Filed herewith.
Unless otherwise indicated, all exhibits have been previously filed.
(1) Incorporated by reference to the Registration Statement of UCAR
International Inc. and UCAR Global Enterprises Inc. on for S-1 (File No.
33-84850).
(2) Incorporated by reference to the Annual Report of the registrant of Form
10-K for the year ended December 31, 1995.
(3) Incorporated by reference to the Registration Statement of the registrant on
Form S-1 (File No. 33-94698).
(4) Incorporated by reference to the Quarterly Report of the registrant on Form
10-Q for the quarter ended March 31, 1996.