UCAR Announces Global Restructuring Plan
UCAR International Inc. (Danbury, CT) has released details about a cost-reduction program for the next three years that will include plant closings, divestitures and write-downs. The recently appointed president and CEO, Gilbert Playford, says that the strategic plan will seek permanent annual cost reductions of $80 million in 1999, $115 million in 2000 and $135 million in 2001. The Plan includes a one-time, 1998 3Q non-recurring charge of $150 million (before tax) consisting of $45 million of cash expenditures and $105 million of non-cash asset impairments and write-downs. A move from the current headquarters in Connecticut, to Nashville, TN, is also being planned.
"The Plan addresses the long-term goal of strengthening UCAR's position as a low-cost supplier to the steel and metals industry and responds to the near-term slowdowns in the global economies that are impacting UCAR's major customers in the electric arc furnace sector of the steel industry," said Playford.
Plant Rationalization
In response to the global market conditions affecting the steel industry in general, and the electric arc furnace sector in particular, UCAR has elected to reduce its graphite electrode manufacturing capacity by 30,000 metric tons (m.t.). The company believes that the reduction represents approximately 4% of the estimated western world graphite electrode manufacturing capacity and approximately 11% of UCAR's capacity. The reduction will be accomplished by permanently closing higher cost operations in Berlin, Germany and Welland, Canada and downsizing operations in Vyazma, Russia.
The Berlin extrusion facility, acquired by UCAR in February 1997, produces "green" graphite electrodes and employs approximately 70 people. The Welland, Canada facility, acquired by UCAR (then known as National Carbon Co.) in 1917, is a fully integrated manufacturer of graphite electrodes with a capacity of 23,000 m.t. It also manufactures carbon and graphite cathodes and employs approximately 280 people. The Vyazma, Russia facility, which originally employed 1,200 people in early 1997, will have approximately 600 employees when downsizing is completed. Its graphite electrode manufacturing capabilities will be reduced to 10,000 m.t. from 17,000 m.t. Cathodes will be manufactured at the company's plant in Columbia, TN. The plant closures and downsizing are expected to generate annual savings of $24 million in 1999 and $33 million in the year 2000 and thereafter, for a one-time cash closure cost of $25 million and a one-time non-cash asset write-down of $91 million. The asset write-down includes an asset impairment for the Company's Russian facility of $61 million associated with the recent economic downturn in that region.
"The decision to close Welland, which has a 91-year history of operations, and Berlin was extremely difficult. We have an excellent workforce that has been dedicated to producing quality products and services for our customers," said Playford. UCAR will work will offer a severance package to affected employees.
Consolidation of Administration
The Company will restructure its geographic operations into a cost center structure at all plant and country company locations. This realignment, together with the centralization and consolidation of administrative and financial services, targets additional cost reductions in general and administrative expenses by approximately 15% in 1999 and 23% in 2000. This consolidation includes the centralizing of UCAR's European administrative activities in its Swiss subsidiary, UCAR S.A., and the relocating of its U.S. headquarters from Danbury, Connecticut to Nashville, Tennessee.
Plant Cost Reduction Programs
Continued focus on UCAR's low-cost supplier strategy has led to the development of more than 100 identified projects to improve plant operating efficiencies. These projects are expected to yield annual savings of approximately $30 million in 1999 and approximately $38 million in the year 2000 and thereafter, after initial capital expenditures of approximately $24 million. These projects relate to such areas as energy conservation, raw material substitution, yield improvement, reduction in labor by automation, maintenance savings and reduction in plant administration.
Asset Sales
The Company has decided to divest or joint venture its graphite specialties business since it is not considered to be in alignment with the Company's new strategic direction. The graphite specialties business generated $113 million in 1997 net sales. If this business is sold, proceeds from this divestment are expected to far exceed the cash cost of the 1998 third quarter write-off and the capital expenditures required to achieve the projected savings.
UCAR International Inc. is the largest manufacturer of graphite and carbon electrodes in the world, with sales in more than 80 countries and manufacturing facilities on four continents. Graphite electrodes, the company's principal product, are consumed primarily in the production of steel in electric arc furnaces, the steelmaking technology used by all minimills, and for refining steel in ladle furnaces. The Company is also the leading producer of cathode blocks which are consumed in the production of aluminum. The Company also manufactures Grafoil flexible graphite and other graphite and carbon products, as well as cooling systems and components for steelmaking furnaces and other high-temperature applications.