================================================================================
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .................... to ....................
Commission file number: (1-13888)
UCAR INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1385548
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
39 OLD RIDGEBURY ROAD, J-4, DANBURY, CONNECTICUT 06817-0001
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 207-7700
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
As of June 30, 1996, 46,267,784 shares of common stock, par value $.01 per
share, were outstanding.
- --------------------------------------------------------------------------------
================================================================================
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
-----------------------------
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995............................................ Page 3
Consolidated Statements of Operations for the Three Months
Ended June 30, 1996 and 1995 and for the Six Months Ended
June 30, 1996 and 1995........................................... Page 4
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 and 1995..................................... Page 5
Consolidated Statement of Stockholders' Equity (Deficit) for the
Six Months Ended June 30, 1996................................... Page 7
Notes to Consolidated Financial Statements........................ Page 8
Item 2. Management's Discussion and Analysis of Financial Condition
-------------------------------------------------------------------
and Results of Operations.................................. Page 12
-------------------------
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders........ Page 18
-----------------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K............................ Page 18
----------------------------------------
SIGNATURE.............................................................. Page 20
INDEX TO EXHIBITS...................................................... Page E-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in millions, except per share data)
June 30, December 31,
ASSETS 1996 1995
---- ----
(Unaudited)
Current assets:
Cash and cash equivalents........................ $ 39 $ 53
Notes and accounts receivable.................... 197 180
Inventories:
Raw materials and supplies.................... 36 28
Work in process............................... 94 78
Finished goods................................ 39 30
------- -------
169 136
Prepaid expenses................................. 25 34
------- -------
Total current assets..................... 430 403
------- -------
Property, plant and equipment...................... 1,023 1,013
Less: accumulated depreciation..................... 647 635
------- -------
Net fixed assets......................... 376 378
------- -------
Company carried at equity.......................... 15 18
Other assets....................................... 56 65
------- -------
Total assets............................. $ 877 $ 864
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 58 $ 56
Short-term debt.................................. 28 31
Payments due within one year on long-term debt... 1 1
Accrued income and other taxes................... 39 50
Other accrued liabilities........................ 73 90
------- -------
Total current liabilities................ 199 228
------- -------
Long-term debt..................................... 603 636
Other long-term obligations........................ 131 137
Deferred income taxes.............................. 19 20
Minority stockholders' equity in consolidated
entities......................................... 4 5
Common stock subject to "puts"..................... - 8
Less: related loans to management................. - (3)
------- -------
Stockholders' equity (deficit):
Preferred stock - par value $.01; authorized
- 10,000,000 shares; issued - none............ - -
Common stock - par value $.01; authorized
- 100,000,000 shares; issued - 46,267,784
shares...................................... - -
Additional paid-in capital........................ 493 485
Cumulative foreign currency
translation adjustment......................... (116) (116)
Retained earnings (deficit)....................... (456) (536)
------- -------
Total stockholders' equity (deficit)...... (79) (167)
------- -------
Total liabilities and stockholders'
equity (deficit)...................... $ 877 $ 864
======= =======
See accompanying Notes to Consolidated Financial Statements.
3
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in millions, except per share data)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales ................................................................ $ 241 $ 227 $ 484 $ 437
Cost of sales ............................................................ 145 139 295 275
-------- -------- -------- --------
Gross profit ............................................................. 96 88 189 162
Research and development ................................................. 2 1 4 3
Selling, administrative and other expenses ............................... 23 26 45 48
Restructuring costs ...................................................... - - - 30
Other (income) expense (net) ............................................. - (8) 1 (2)
-------- -------- -------- --------
Operating profit .................................................... 71 69 139 83
Interest expense ......................................................... 15 26 31 49
-------- -------- -------- --------
Income before provision for income taxes ............................ 56 43 108 34
Provision for income taxes ............................................... 19 15 38 52
-------- -------- -------- --------
Income (loss) of consolidated entities .............................. 37 28 70 (18)
Less: minority stockholders' share of income ............................. - 2 - 3
Plus: UCAR share of net income from company carried at equity ............ 1 1 3 2
-------- -------- -------- --------
Income (loss) before extraordinary charge and cumulative
effect of change in accounting principles ......................... 38 27 73 (19)
Extraordinary charge, net of tax ......................................... - 2 - 2
-------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting principles ............................................. 38 25 73 (21)
Cumulative effect on prior years of change in
accounting for inventories ............................................ - - 7 -
-------- -------- -------- --------
Net income (loss) ................................................. $ 38 $ 25 $ 80 $ (21)
======== ======== ======== ========
Primary net income per common share (Note 7) (Pro forma in 1995):
Income before cumulative effect of change in
accounting principles ............................................... $ 0.78 $ 0.67 $ 1.51 $ 0.66
Cumulative effect on prior years of change in
accounting for inventories .......................................... - - 0.15 -
-------- -------- -------- --------
Primary net income per share ...................................... $ 0.78 $ 0.67 $ 1.66 $ 0.66
======== ======== ======== ========
Weighted average common shares outstanding
(Pro forma in 1995) (in thousands) .............................. 48,407 47,738 48,299 47,738
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
4
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in millions)
(Unaudited)
Six Months
Ended June 30,
--------------
1996 1995
---- ----
Cash flow from operating activities:
Net income (loss) ........................................... $ 80 $ (21)
Cumulative effect on prior years of change in
accounting for inventories ............................... (7) -
Non-cash charges to net income (loss):
Depreciation .............................................. 19 19
Deferred income taxes ..................................... 11 1
Restructuring costs ....................................... - 30
Other non-cash charges .................................... 9 9
Working capital * ........................................... (62) (3)
Long-term assets and liabilities ............................ (6) (4)
----- -----
Net cash provided by operating activities ............... 44 31
----- -----
Cash flow from investing activities:
Capital expenditures ........................................ (23) (23)
Purchase of minority shares in subsidiary ................... (3) -
Redemption/sale of assets ................................... 1 1
----- -----
Net cash used in investing activities ................... (25) (22)
----- -----
Cash flow from financing activities:
Short-term debt ............................................. (3) (11)
Long-term debt borrowings ................................... 2 960
Long-term debt reductions ................................... (35) (275)
Financing costs ............................................. (1) (63)
Sale of common stock, net of loans to management ............ 4 200
Cash distribution to stockholders ........................... - (756)
----- -----
Net cash (used in) provided by financing activities .... (33) 55
----- -----
Net (decrease) increase in cash and cash equivalents ......... (14) 64
Effect of exchange rate changes on
cash and cash equivalents .................................. - (2)
Cash and cash equivalents at beginning of period ............. 53 60
----- -----
Cash and cash equivalents at end of period.................... $ 39 $ 122
===== =====
(Continued)
5
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Six Months
Ended June 30,
--------------
1996 1995
---- ----
Supplemental disclosures of cash flow information:
Net cash paid during the periods for:
Interest expense .......................................... $ 29 $ 23
Income taxes .............................................. 26 17
*Net change in working capital by component (excluding
cash and cash equivalents, deferred income taxes and
short-term debt):
(Increase) decrease in current assets:
Notes and accounts receivable:
Sale of receivables ................................. $ 2 $ (2)
Other changes ....................................... (22) (23)
Inventories ............................................. (24) (11)
Prepaid expenses and other current assets ............... 4 -
Increase (decrease) in payables and accruals ............... (22) 33
----- -----
Working capital ..................................... $ (62) $ (3)
===== =====
See accompanying Notes to Consolidated Financial Statements.
6
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficit)
Six Months Ended June 30, 1996
(Dollars in millions)
(Unaudited)
Cumulative
Foreign
Additional Currency Retained Total
Common Paid-in Translation Earnings Stockholders'
Stock Capital Adjustment (Deficit) Equity (Deficit)
----- ------- ---------- --------- ----------------
Balance At December 31, 1995............... $ - $ 485 $ (116) $ (536) $ (167)
Exercise of employee stock options......... - 2 - - 2
Tax benefit arising from exercise
of employee stock options............... - 2 - - 2
Reclassification of:
Common stock subject to "puts".......... - 8 - - 8
Related loans to management............. - (3) - - (3)
Registration cost of offering.............. - (1) - - (1)
Translation adjustments.................... - - - - -
Net income................................. - - - 80 80
------- ------- -------- -------- -------
Balance At June 30, 1996................... $ - $ 493 $ (116) $ (456) $ (79)
======= ======= ======== ======== =======
See accompanying Notes to Consolidated Financial Statements.
7
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) INTERIM FINANCIAL PRESENTATION
The interim Consolidated Financial Statements are unaudited; however, in
the opinion of management, they have been prepared in accordance with
Rule 10-01 of Regulation S-X adopted by the Securities and Exchange
Commission ("Commission") and reflect all adjustments (all of which are
of a normal, recurring nature) which are necessary for a fair statement
of the financial condition, results of operations, cash flows and changes
in stockholders' equity (deficit) for the periods presented. Results of
operations for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the entire fiscal year
ending December 31, 1996.
As used in these Notes, references to "UCAR" mean UCAR International
Inc., to "Global" mean UCAR Global Enterprises Inc., a direct,
wholly-owned subsidiary of UCAR, and to the "Company" mean UCAR and its
subsidiaries (including Global), collectively. Separate financial
statements of Global are not presented because they would not be material
to holders of senior subordinated notes. The Company's investment in EMSA
(Pty.) Ltd. ("EMSA"), a 50%-owned company, is carried on the equity basis
and its proportional share of the net income of EMSA is reported under
the caption "UCAR share of net income from company carried at equity". At
June 30, 1996, retained earnings (deficit) included $35 million
representing UCAR's share of the undistributed earnings (prior to foreign
currency translation adjustment) of EMSA.
(2) UCAR GLOBAL ENTERPRISES INC.
UCAR has no material assets, liabilities or operations other than those
that result from its ownership of 100% of the outstanding common stock of
Global.
The following is a summary of the consolidated assets and liabilities of
Global and its subsidiaries at June 30, 1996 and December 31, 1995 and
its consolidated results of operations for the three month and six month
periods ended June 30, 1996 and 1995:
June 30, December 31,
1996 1995
---- ----
(Dollars in millions)
Assets:
Current assets............................ $ 430 $ 403
Non-current assets ....................... 447 461
------ ------
Total assets........................... $ 877 $ 864
====== ======
Liabilities:
Current liabilities....................... $ 199 228
Non-current liabilities .................. 753 793
------ ------
Total liabilities...................... $ 952 $1,021
====== ======
Minority stockholders' equity in
consolidated entities ................. $ 4 $ 5
====== ======
8
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions)
Net sales ................................ $ 241 $ 227 $ 484 $ 437
Gross profit ............................. 96 88 189 162
Income (loss) before extraordinary charge
and cumulative effect of change in
cumulative effect of change in
accounting principles .................. 38 27 73 (19)
Net income (loss) ........................ 38 25 80 (21)
(3) CHANGE IN ACCOUNTING FOR INVENTORIES
Effective January 1, 1996, the Company changed its method of determining
LIFO inventories. The new methodology provides specifically identified
parameters for defining new items within the LIFO pool which the Company
believes improves the accuracy of costing those items.
The Company recorded income of $7 million (after related income taxes of
$4 million) as the cumulative effect on prior years of this change in
accounting for inventories. The Company believes this change will not
materially impact the Company's ongoing results of operations.
(4) INCOME TAXES
In connection with the leveraged recapitalization of the Company in
January 1995 ("Recapitalization"), certain foreign subsidiaries borrowed
and repatriated funds to the United States. In the three months ended
March 31, 1995, the Company recorded a tax liability of $37 million in
connection therewith.
(5) RESTRUCTURING COSTS
The Company recorded restructuring costs of $30 million in the three
months ended March 31, 1995 to write-off fixed assets of $22 million and
accrue $8 million of related shutdown costs in connection with a project
to close certain high cost manufacturing operations and to add modern
lower cost manufacturing operations at the Company's North American
graphite electrode plants.
9
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
(6) OTHER (INCOME) EXPENSE - NET
The following is an analysis of other (income) expense (net):
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions)
Foreign currency adjustments ............ $ - $ (6) $ 1 $ (4)
Interest income ......................... (3) (6) (5) (13)
Loss on sales and disposals of assets ... 1 - 1 1
Brazilian monetary correction ........... - - - 2
Bank fees due to Recapitalization ....... - - - 7
Other ................................... 2 4 4 5
---- ---- ---- ----
$ - $ (8) $ 1 $ (2)
==== ==== ==== ====
(7) EARNINGS PER SHARE
Primary Net Income Per Share
Primary net income per share is computed by dividing net income by the
weighted average number of common shares outstanding during the period.
The weighted average number of common shares outstanding includes common
stock equivalents calculated in accordance with the "treasury stock
method," wherein the net proceeds from the exercise thereof are assumed
to be used to repurchase outstanding shares of common stock at the
average market price for the period. Fully diluted earnings per share is
not significantly different than primary net income per share, and
therefore, has not been presented.
Pro Forma Net Income Per Share
For the unaudited pro forma net income per share data presented on the
Consolidated Statements of Operations, historical net income (loss) for
the three month and six month periods ended June 30, 1995 has been
adjusted as if the Recapitalization and the Company's initial public
offering ("Initial Offering"), redemption of senior subordinated notes
("Redemption") and refinancing of credit facilities ("Refinancing") had
occurred as of January 1, 1995 and to exclude the extraordinary charge
and the non-recurring effects of the Recapitalization and the Initial
Offering. The weighted average number of common shares outstanding
reflects shares of common stock outstanding after the Initial Offering,
including common stock equivalents calculated in accordance with the
"treasury stock method," wherein the net proceeds from the exercise
thereof
10
PART I (Cont.)
UCAR INTERNATIONAL INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Cont.)
(Unaudited)
are assumed to be used to repurchase outstanding shares of common stock
at $23.75 (the initial public offering price per share in the Initial
Offering).
The following table is a summary of the pro forma adjustments to net
income (loss) for the periods presented:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1995 1995
---- ----
(Dollars in millions)
Net income (loss) as reported in the Consolidated
Financial Statements.............................. $ 25 $ (21)
Pro forma effects of the Recapitalization (after tax):
Compensation expense related to the Company's
long term incentive compensation plan ........ - 1
Senior subordinated credit facility expense .... - 4
Net adjustment to interest ..................... - (3)
Taxes due to Recapitalization .................. - 37
Pro forma effects of the Initial Offering and
Redemption (after tax):
Net adjustment to interest ..................... 3 7
Extraordinary charge ........................... 2 2
Pro forma effects of the Refinancing (after tax):
Net adjustment to interest ..................... 2 4
---- ----
Pro forma net income................................. $ 32 $ 31
===== =====
11
PART I (Cont.)
UCAR INTERNATIONAL INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
GENERAL
As used herein, references to "UCAR" mean UCAR International Inc., to "Global"
mean UCAR Global Enterprises Inc., a direct, wholly-owned subsidiary of UCAR,
and to the "Company" mean UCAR and its subsidiaries (including Global),
collectively.
On January 26, 1995, the Company consummated a leveraged recapitalization
("Recapitalization"). On August 15, 1995, UCAR completed an initial public
offering ("Initial Offering") of its common stock, par value $.01 per share
("Common Stock"). On September 11, 1995, the Company acquired substantially all
of the outstanding common stock of its Brazilian subsidiary, UCAR Carbon S.A.,
held by public shareholders in Brazil. On September 15, 1995, the Company
redeemed $175 million aggregate principal amount of Senior Subordinated Notes
("Subordinated Notes") at a redemption price equal to 110% of the aggregate
principal amount thereof, plus accrued interest thereon of approximately $4
million ("Redemption"). On October 19, 1995, the Company refinanced its existing
credit facilities ("Recapitalization Bank Facilities") and entered into new
credit facilities ("Senior Bank Facilities") at more favorable interest rates
and with more favorable covenants.
On March 6, 1996, certain stockholders of UCAR sold 16,675,000 shares of Common
Stock in a secondary public offering ("Secondary Offering"). In the Secondary
Offering, Blackstone Capital Partners II Merchant Banking Fund L.P. and its
affiliates (collectively, "Blackstone"), Chemical Equity Associates and certain
members of management sold approximately 15,449,000 shares, 826,000 and 400,000
shares, respectively. After the Secondary Offering, Blackstone owned
approximately 20% of the outstanding shares of Common Stock. UCAR did not sell
any shares in the Secondary Offering and did not receive any proceeds from the
shares sold by the selling stockholders. Approximately 193,000 of the shares
sold by management consisted of shares issued upon the exercise of vested stock
options concurrently with the Secondary Offering and the Company received
proceeds of approximately $1.5 million from the exercise of such options.
RESULTS OF OPERATIONS
Three Month and Six Month Periods Ended June 30, 1996 as Compared to Three Month
and Six Month Periods Ended June 30, 1995
Net sales of $241 million in the second quarter of 1996 ("1996 Second Quarter")
represents a 6% increase over net sales of $227 million in the second quarter of
1995 ("1995 Second Quarter"). Graphite electrode sales were $170 million in the
1996 Second Quarter as compared to $169 million in the 1995 Second Quarter.
While net sales of graphite electrodes remained flat, the volume of graphite
electrodes sold declined 7% to 50,000 metric tons in the 1996 Second Quarter
from 53,900 metric tons in the 1995 Second Quarter. This decline was primarily
due to a temporary delay in shipments of ordered electrodes to certain export
markets pending receipt of satisfactory assurances of payment. It is the
Company's practice to assure security of payment before shipping products. The
Company believes virtually all of
12
PART I (Cont.)
UCAR INTERNATIONAL INC.
these orders will be released for shipment prior to the end of 1996. Subsequent
to June 30, 1996 the Company has received satisfactory assurances as to some of
these orders and has released the corresponding shipments. The average selling
price (in dollars and net of change in currency exchange rates) for the
Company's graphite electrodes rose by 5.3% per metric ton in the 1996 Second
Quarter as compared to the 1995 Second Quarter. Net sales of graphite specialty
products in the 1996 Second Quarter increased 26% to $34 million from $27
million in the 1995 Second Quarter. This increase was due primarily to increased
sales of molded products used primarily in the manufacture of rail car wheels,
extruded, purified products used largely by the semiconductor industries, and
products used for composite tooling applications in the aerospace and aircraft
manufacturing industries. The average selling price for graphite specialty
products rose 8% (in dollars and net of changes in currency exchange rates) in
the 1996 Second Quarter as compared to the 1995 Second Quarter. Net sales of
carbon specialty products increased 29% to $27 million in the 1996 Second
Quarter from $21 million in the 1995 Second Quarter. This increase was due
primarily to a previously forecasted increase in demand and an emergency
shipment of carbon refractory materials generally used to re-line blast
furnaces. Net sales of Grafoil(Registered) remained flat at $9 million in both
the 1996 Second Quarter and the 1995 Second Quarter.
Net sales in the six months ended June 30, 1996 (the "1996 Period") were $484
million, an increase of 11% over net sales of $437 million in the six months
ended June 30, 1995 (the "1995 Period"). Net sales of graphite electrodes were
$353 million in the 1996 Period as compared to $327 million in the 1995 Period.
The volume of graphite electrodes sold declined 2,700 metric tons or 2.5% in the
1996 Period as compared to the 1995 Period due to the delayed shipments
described above. The average selling price (in dollars and net of change in
currency exchange rates) for the Company's graphite electrodes rose by 8.5% per
metric ton in the 1996 Period as compared to the 1995 Period. Net sales of
graphite specialty products in the 1996 Period increased 21% to $64 million from
$53 million in the 1995 Period due to both increased demand and selling price.
Net sales of carbon specialty products increased 29% to $49 million in the 1996
Period from $38 million in the 1995 Period. This increase was due to a 6% price
increase (in dollars) which became effective on January 1, 1996, a previously
forecasted increase in demand and emergency shipment of refractory materials.
Net sales of Grafoil(Registered) were $18 million in the 1996 Period as compared
to $19 million in the 1995 Period.
Cost of sales increased 4% to $145 million in the 1996 Second Quarter from $139
million in the 1995 Second Quarter. This increase was primarily due to the
increased volume of carbon specialty and graphite specialty products sold. In
the 1996 Period, cost of sales increased 7% to $295 million from $275 million in
the 1995 Period, also due primarily to the increased volume of carbon specialty
and graphite specialty products sold.
As a result of the changes described above, the Company's gross profit margin
increased to 39.8% in the 1996 Second Quarter from 38.8% in the 1995 Second
Quarter. In the 1996 Period, gross profit margin increased to 39.0% from 37.1%
in the 1995 Period.
Selling, administrative and other expenses decreased to $23 million in the 1996
Second Quarter from $26 million in the 1995 Second Quarter. For the 1996 Period,
selling, administrative and other expenses decreased to $45 million from $48
million in the 1995 Period. The decrease is due to an accrual in the
13
PART I (Cont.)
UCAR INTERNATIONAL INC.
1995 Second Quarter of compensation expense relating to performance stock
options while there was no such accrual in the 1996 Second Quarter.
Restructuring costs of $30 million were incurred in the 1995 Period in
connection with a project, approved by UCAR's Board of Directors in January
1995, which involved the closure of certain high cost manufacturing operations
and the addition of modern lower cost manufacturing operations at the Company's
North American graphite electrode plants ("Rationalization Project"). The
Rationalization Project is expected to yield approximately $23 million in annual
cost savings, with approximately $20 million expected to be realized in 1996 and
the full $23 million expected to be realized in 1997 (in each case, as compared
to 1994). These restructuring costs include fixed asset write-offs of $22
million and $8 million of facility closing expenses and environmental clean-up
costs. No restructuring costs were incurred in the second quarter of either 1996
or 1995.
Other (income) expense (net) was nil in the 1996 Second Quarter as compared to
income of $8 million in the 1995 Second Quarter. This change was primarily due
to a $3 million decrease in interest income and a $6 million decrease in
exchange gains on transactions denominated in foreign currencies. Certain hedge
transactions have been implemented to mitigate the currency exposure for the
Company on a global basis. Other (income) expense (net) for the 1996 Period was
$1 million of expense as compared to income of $2 million for the 1995 Period.
The major changes between the 1996 Period and the 1995 Period were an $8 million
decrease in interest income and a $6 million expense in the 1995 Period
associated with a back-up senior subordinated credit facility provided by
Chemical Bank in connection with the Recapitalization.
Operating profit in the 1996 Second Quarter was $71 million (29.5% of net sales)
as compared to $69 million (30.4% of net sales) in the 1995 Second Quarter. In
the 1996 Period, operating profit was $139 million (28.7% of net sales) as
compared to $83 million (19.0% of net sales) in the 1995 Period. Excluding the
restructuring costs of $30 million, the non-recurring expenses of $6 million for
a senior subordinated credit facility which was available but not used in
connection with the Recapitalization and $2 million under the Company's long
term incentive compensation plan which were incurred as a result of the
Recapitalization, operating profit in the 1995 Period would have been $121
million (27.7% of net sales).
Interest expense decreased to $15 million in the 1996 Second Quarter from $26
million in the 1995 Second Quarter. The average outstanding total debt in the
1996 Second Quarter was $643 million as compared to $927 million in the 1995
Second Quarter, and the average annual interest rate in the 1996 Second Quarter
was 9.5% as compared to 10.8% in the 1995 Second Quarter. Interest expense
decreased to $31 million in the 1996 Period as compared to $49 million in the
1995 Period. The average outstanding total debt was $656 million and the average
annual interest rate was 9.5% in the 1996 Period as compared to an average
outstanding total debt of $887 million and an average annual interest rate of
9.9% in the 1995 Period.
The provision for income taxes was $19 million in the 1996 Second Quarter as
compared to $15 million in the 1995 Second Quarter. This increase is primarily
due to higher pre-tax income. The provision for
14
PART I (Cont.)
UCAR INTERNATIONAL INC.
income taxes decreased to $38 million in the 1996 Period as compared to $52
million in the 1995 Period. The decrease in income tax expense was primarily due
to non-recurring taxes of approximately $37 million in the 1995 first quarter
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 the improvement in income before provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Debt
At June 30, 1996, the Company had total debt of $632 million as compared to $668
million at December 31, 1995. The Company had a stockholders' deficit of $79
million at June 30, 1996 as compared to $167 million at December 31, 1995. The
Company believes that cash flow from operations combined with its $100 million
revolving credit facility and existing cash balances will be adequate to meet
the Company's debt service requirements, fund continued capital requirements,
allow for growth opportunities and meet working capital and general corporate
needs.
Inventory Levels and Working Capital
Inventory levels at any specified date are affected by increases in inventories
of raw materials to meet anticipated increases in sales of finished products,
customer buy-ins and other factors affecting net sales from quarter to quarter.
Inventory levels increased to $169 million at June 30, 1996 from $136 million at
December 31, 1995. This increase was primarily due to an $11 million LIFO
accounting method change, a $6 million temporary build-up of inventory in North
America due to the Rationalization Project and a $16 million increase of
inventory in Europe as a result of delay in shipments to certain export markets
pending receipt of satisfactory assurances of payment.
The Company's working capital increased to $231 million at June 30, 1996 from
$175 million at December 31, 1995. The increase is primarily due to the increase
in inventory described above, an increase of $17 million in receivables and a
decrease of $26 million in accrued liabilities and payables. Cash and cash
equivalents were $14 million lower at June 30, 1996 than at December 31, 1995.
Cash and cash equivalents at June 30, 1996 included $2 million set aside for the
Rationalization Project and $28 million held by the Company's Brazilian
subsidiary.
Capital Expenditures
Capital expenditures aggregated $23 million (including $1 million for the
Rationalization Project) in the 1996 Period as compared to $23 million in the
1995 Period. Capital expenditures have been and will be made during 1996 to
maintain existing facilities and equipment, to achieve cost savings and to
improve operating efficiency (including the Rationalization Project and other
restructuring and reengineering projects). The Company expects capital
expenditures in 1996 to total approximately $60 million (including expenditures
relating to the Rationalization Project which were pre-funded as part of the
15
PART I (Cont.)
UCAR INTERNATIONAL INC.
Recapitalization). Capital expenditures for environmental protection have not
been and are not expected to be a significant factor with respect to the
Company's capital expenditures as a whole.
Acquisition
On May 21, 1996, the Company announced its intention to pursue the purchase of
70% of the outstanding shares of Carbone Savoie, a wholly owned subsidiary of a
competitor. It is the intent of both parties to consummate the transaction by
September 30, 1996, after satisfaction of a number of conditions, including
execution of definitive agreements, receipt of governmental approvals,
satisfactory completion of due diligence and approval by the senior management
of both parties and their respective Boards of Directors. While the final
purchase price will not be determined until after satisfactory completion of due
diligence, it is estimated that the purchase price will not exceed 200 million
French Francs. The Company intends to finance payment of the purchase price from
existing cash, cash flow from operations and borrowings under its revolving
credit facility.
Restrictions on Dividends and Distributions
Under the Senior Bank Facilities, UCAR and Global are generally permitted to pay
dividends to their respective stockholders only in an annual amount up to the
greater of $15 million or a specified percentage of adjusted consolidated net
income.
The indenture relating to the Subordinated Notes restricts the payment of
dividends by Global to UCAR if (a) at the time of such proposed dividend, Global
is unable to meet certain indebtedness incurrence and income tests or (b) the
total amount of the dividend paid exceeds specified aggregate limits based on
consolidated net income and net proceeds from asset and stock sales and certain
other transactions. Such restrictions are not applicable to dividends (i) in
respect of UCAR's administrative fees and expenses and (ii) for the specific
purpose of the purchase or redemption by UCAR of capital stock held by present
or former officers of the Company up to $5 million per year or $25 million in
the aggregate.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1996, the Company changed its method of determining LIFO
inventories. The new methodology provides specifically identified parameters for
defining new items within the LIFO pool which the Company believes improves the
accuracy of costing those items.
The Company recorded income of $7 million (after related income taxes of $4
million) as the cumulative effect on prior years of this change in accounting
for inventories. The Company believes this change will not materially impact the
Company's ongoing results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 123, "Accounting for Stock-Based
Compensation" which is effective for years beginning after December 15, 1995.
SFAS 123 permits a fair value based method of accounting for employee stock
compensation plans. It also allows a company to continue to use the intrinsic
value
16
PART I (Cont.)
UCAR INTERNATIONAL INC.
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 intends
to continue the method of accounting for stock-based compensation prescribed by
APB 25; accordingly, the adoption of SFAS 123 will have no effect on the Company
with the exception of expanded disclosures required under SFAS 123.
17
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
On May 7, 1996, the Company held its annual meeting of stockholders in Danbury,
Connecticut. The stockholders elected the following directors with corresponding
votes for and withheld:
Number Of Number Of
Name Of Director Shares Voted For Shares Withheld
---------------- ---------------- ---------------
Robert P. Krass................ 41,786,999 262,831
R. Eugene Cartledge............ 41,820,784 229,046
John R. Hall................... 41,820,909 228,921
Glenn H. Hutchins.............. 41,784,300 265,530
Robert D. Kennedy.............. 41,787,109 262,721
Howard A. Lipson............... 41,783,996 265,834
Peter G. Peterson.............. 40,680,065 1,369,765
Stephen A. Schwarzman.......... 41,784,386 265,444
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS
The exhibits listed in the following table have been filed as part of this
Quarterly Report on Form 10-Q.
Exhibit
Number Description of Exhibit
------ ----------------------
10.30 Amendment to UCAR International Inc. Management Stock Option Plan
dated July 29, 1996
10.31(a) First Amendment to UCAR International Inc. Bonus II Plan dated
May 7, 1996
10.33 Amended and Restated UCAR International Inc. Officers' Incentive
Plan dated May 7, 1996
10.41(a) Second Amendment to the UCAR Carbon Retirement Plan dated
May 7, 1996
10.45 Amended and Restated Equalization Benefit Plan for Participants
of the UCAR Carbon Retirement Plan dated May 7, 1996
10.54(a) First Amendment to UCAR International Inc. 1995 Equity Incentive
Plan dated July 29, 1996
18
PART II. OTHER INFORMATION
UCAR INTERNATIONAL INC.
10.55 First Amendment to UCAR International Inc. 1995 Directors' Stock
Plan dated July 29, 1996
10.57(a) Amendment to UCAR International Inc. 1996 Mid-Management Equity
Incentive Plan dated July 29, 1996
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No Report on Form 8-K was filed during the quarter for which this Quarterly
Report on Form 10-Q is filed.
19
UCAR INTERNATIONAL INC.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
UCAR INTERNATIONAL INC.
Date: August 1, 1996 By: /s/ William P. Wiemels
----------------------
William P. Wiemels
Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
20
UCAR INTERNATIONAL INC.
INDEX TO EXHIBITS
Exhibit No. Description Page
10.30 Amendment to UCAR International Inc. Management Stock
Option Plan dated July 29, 1996............................... E-2
10.31(a) First Amendment to UCAR International Inc. Bonus II Plan
dated May 7, 1996............................................. E-4
10.33 Amended and Restated UCAR International Inc. Officers'
Incentive Plan dated May 7, 1996.............................. E-5
10.41(a) Second Amendment to the UCAR Carbon Retirement Plan dated
May 7, 1996................................................... E-13
10.45 Amended and Restated Equalization Benefit Plan for
Participants of the UCAR Carbon Retirement Plan dated
May 7, 1996................................................... E-14
10.54(a) First Amendment to UCAR International Inc. 1995 Equity
Incentive Plan dated July 29, 1996............................ E-18
10.55 First Amendment to UCAR International Inc. 1995 Directors'
Stock Plan dated July 29, 1996................................ E-19
10.57(a) Amendment to UCAR International Inc. 1996 Mid-Management
Equity Incentive Plan dated July 29, 1996...................... E-20
11 Statement re: computation of per share earnings................ E-21
27 Financial Data Schedule........................................ E-22
E-1