<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER -- 0-20490
----------------------
THE CARBIDE/GRAPHITE GROUP, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 25-1575609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Code)
One Gateway Center, 19th Floor
Pittsburgh, PA 15222
(412) 562-3700
(Address, including zip code, and
telephone number, including area code,
of principle executive offices)
- --------------------------------------------------------------------------------
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 the close of business on December 12, 1999, there were 8,312,842 shares of
the Registrant's $0.01 par value Common Stock outstanding.
<PAGE> 2
THE CARBIDE/GRAPHITE GROUP, INC.
INDEX TO FORM 10-Q
ITEM DESCRIPTION PAGE
------ -------------------------------------------------------- ------
PART I
------
1 Index to Financial Statements ......................... 2
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 14
3 Quantitative and Qualitative Disclosure
About Market Risk................................. 19
PART II
-------
1 Legal Proceedings ..................................... 20
2 Changes in Securities and Use of Proceeds ............. *
3 Defaults Upon Senior Securities ....................... *
4 Submission of Matters to a Vote of Security Holders ... *
5 Other Information ..................................... *
6 Index to Exhibits and Reports on Form 8-K ............. 23
Signatures ............................................ 24
- --------------
* Item not applicable to the Registrant for this filing on Form 10-Q.
1
<PAGE> 3
PART I
Item 1
INDEX TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
DESCRIPTION PAGE
- ---------------------------------------------------------------------- ------
Condensed Consolidated Balance Sheets
as of October 31, 1999 and July 31, 1999 ........................ 3
Unaudited Consolidated Statements of Operations
for the Quarters Ended October 31, 1999 and 1998 ................ 4
Unaudited Consolidated Statement of Stockholders' Equity
for the Quarter Ended October 31, 1999 .......................... 5
Unaudited Consolidated Statements of Cash Flows for the
Quarters Ended October 31, 1999 and 1998 ........................ 6
Footnotes to Unaudited Condensed Consolidated Financial Statements ... 7
2
<PAGE> 4
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of October 31, 1999 and July 31, 1999
(in thousands, except share information)
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999 *
----------- ----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable -- trade, net of allowance for doubtful
accounts: $736 at October 31 and $819 at July 31 ................. $40,675 $37,997
Inventories (Note 2) ................................................... 75,333 73,621
Income taxes receivable ............................................... -- 6,592
Deferred income taxes .................................................. 12,093 12,093
Other current assets ................................................... 5,275 5,989
----------- ----------
Total current assets ............................................... 133,376 136,292
Property, plant and equipment, net ......................................... 128,513 130,342
Other assets ............................................................... 8,313 7,782
----------- ----------
Total assets ................................................... $270,202 $274,416
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses:
Overdrafts ........................................................... $5,312 $4,079
Accounts payable, trade .............................................. 12,026 16,937
Antitrust claims reserve (Note 4) .................................... 19,951 21,404
Other current liabilities ............................................ 15,393 18,268
----------- ----------
Total current liabilities .......................................... 52,682 60,688
Long-term debt (Note 5) .................................................... 113,200 110,500
Other liabilities .......................................................... 22,111 21,911
----------- ----------
Total liabilities ................................................ 187,993 193,099
----------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value; 2,000,000 shares authorized;
none outstanding .................................................. -- --
Common stock, $0.01 par value; 18,000,000 shares authorized;
shares issued: 9,937,042 at October 31 and July 31;
shares outstanding: 8,337,842 at October 31 and July 31 ........... 99 99
Additional paid-in capital, net of $1,398 equity issue costs ........... 36,616 36,616
Retained earnings ..................................................... 56,487 55,595
Other stockholders' equity items ...................................... (10,993) (10,993)
----------- ----------
Total stockholders' equity ...................................... 82,209 81,317
----------- ----------
Total liabilities and stockholders' equity ..................... $270,202 $274,416
=========== ==========
</TABLE>
- --------------
* Summarized from audited fiscal 1999 balance sheet.
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
3
<PAGE> 5
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
for the quarters ended October 31, 1999 and 1998
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Quarter Ended October 31,
----------------------------------------
1999 1998
------------------- -------------------
(Unaudited)
<S> <C> <C>
Net sales .............................................................. $51,123 $69,352
Operating costs and expenses:
Cost of goods sold ................................................. 44,703 59,332
Selling, general and administrative ................................ 2,980 3,584
Other expense (Note 6) ............................................. -- 8,043
------------------ ------------------
Operating income (loss) ........................................ 3,440 (1,607)
Other costs and expenses:
Interest expense, net ............................................... 2,092 1,458
------------------ ------------------
Income (loss) before income taxes and extraordinary loss ....... 1,348 (3,065)
Provision for (benefit from) income taxes (Note 3) ..................... 456 (1,072)
------------------ ------------------
Net income (loss) ............................................. $892 ($1,993)
================== ==================
Earnings per share information (Note 1):
- ----------------------------------------
Weighted average common shares outstanding ............................. 8,337,842 8,529,075
------------------ ------------------
Weighted average common and
common equivalent shares outstanding ................................. 8,351,807 --
------------------ ------------------
Net income (loss):
Basic ................................................................ $0.11 ($0.23)
================== ==================
Diluted .............................................................. $0.11 ($0.23)
================== ==================
</TABLE>
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
4
<PAGE> 6
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
for the quarter ended October 31, 1999
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Other
Comprehensive ------------------------ Paid-In Retained Stockholders'
Income Shares Amount Capital Earnings Equity Items
----------------- ------------ ---------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1999 *.......... 9,937,042 $99 $36,616 $55,595 ($10,993)
Net income ....................... $892 892
================= ------------ ---------- ------------- ------------ ---------------
Balance at October 31,
1999 (Unaudited) ................ 9,937,042 $99 $36,616 $56,487 ($10,993)
============ ========== ============= ============ ===============
</TABLE>
- ---------------
* Summarized from audited fiscal year 1999 statement of stockholders' equity.
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
5
<PAGE> 7
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the quarters ended October 31, 1999 and 1998
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended October 31,
----------------------------------
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
Net income (loss) .......................................................... $892 ($1,993)
Adjustments for noncash transactions:
Depreciation and amortization ........................................... 4,947 4,419
Amortization of debt issuance costs ..................................... 53 36
Amortization of intangible assets ....................................... 13 21
Adjustments to deferred taxes ........................................... -- (1,853)
Loss on the impairment of assets ........................................ -- 5,742
Increase (decrease) in cash from changes in:
Accounts receivable ..................................................... (2,738) (779)
Inventories ............................................................. (1,712) 171
Income taxes ............................................................ 7,267 (832)
Other current assets .................................................... 714 550
Accounts payable and accrued expenses ................................... (9,914) 2,004
Net change in other non-current assets and liabilities .................. (337) 504
--------------- ---------------
Net cash provided by (used for) operations .......................... (815) 7,990
--------------- ---------------
Investing activities:
Capital expenditures .................................................... (3,118) (2,799)
--------------- ---------------
Net cash used for investing activities .............................. (3,118) (2,799)
--------------- ---------------
Financing activities:
Funds from revolving credit facility .................................... 21,500 18,470
Repayments on revolving credit facility ................................. (18,800) (18,620)
Purchase of treasury stock .............................................. -- (3,765)
Other ................................................................... 1,233 (1,276)
--------------- ---------------
Net cash provided by (used for) financing activities ............... 3,933 (5,191)
--------------- ---------------
Net change in cash and cash equivalents ................................... -- --
Cash and cash equivalents, beginning of period ............................ -- --
=============== ===============
Cash and cash equivalents, end of period .................................. -- --
=============== ===============
</TABLE>
The accompanying notes are an integral part of the Unaudited
Condensed Consolidated Financial Statements.
6
<PAGE> 8
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The Carbide/Graphite Group, Inc. and Subsidiaries herein are referenced
as the "Company." The Company's current fiscal year ends July 31, 2000.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM ACCOUNTING
The Company's Annual Report on Form 10-K for its fiscal year ended July
31, 1999 includes additional information about the Company, its operations and
its consolidated financial statements, and contains a summary of significant
accounting policies followed by the Company in preparation of its consolidated
financial statements and should be read in conjunction with this quarterly
report on Form 10-Q. These policies were also followed in preparing the
Unaudited Condensed Consolidated Financial Statements included herein. The 1999
year-end consolidated balance sheet data contained herein were derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
In the opinion of management, all adjustments that are of a normal and
recurring nature necessary for a fair statement of the results of operations of
these interim periods have been included. The net income for the quarter ended
October 31, 1999 is not necessarily indicative of the results to be expected for
the full fiscal year. The Management Discussion and Analysis that follows these
notes contains additional information on the results of operations and financial
position of the Company. These comments should be read in conjunction with these
financial statements.
EARNINGS PER SHARE
The following table provides a reconciliation of the income (loss) and
share amounts for the basic and diluted earnings per share computations for
income (loss) from operations for the quarters ended October 31, 1999 and 1998
(dollar amounts in thousands):
<TABLE>
<CAPTION>
For the quarters ended October 31,
------------------------------------------------------------------------
1999 1998
---------------------------------- -------------------------------------
Per Per
Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount
-------- ---------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share........ $892 8,337,842 $0.11 ($1,993) 8,529,075 ($0.23)
======= =========
Effect of dilutive securities:
Options for common stock...... -- 13,965 -- --
------ ---------- ------- -----------
Diluted earnings per share...... $892 8,351,807 $0.11 ($1,993) 8,529,075 ($0.23)
====== ========== ======= ======= =========== =========
</TABLE>
Since the Company's results from operations were a net loss for the
quarter ended October 31, 1998, common equivalent shares were excluded from the
diluted earnings per share computation for the period as their effect would have
been anti-dilutive.
7
<PAGE> 9
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting
Standards #133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS #133) for all of the quarters in its fiscal year ending July 31, 2001.
SFAS #133 establishes accounting and reporting standards for derivatives and
hedging activities. The Company has not yet completed its evaluation of the
financial accounting and reporting impact of SFAS #133.
2. INVENTORIES:
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
October 31, July 31,
1999 1999
---------- --------
<S> <C> <C>
Finished goods .................... $ 23,179 $ 22,386
Work in process ................... 44,931 43,723
Raw materials ..................... 13,031 13,429
-------- --------
81,141 79,538
LIFO reserve ...................... (16,429) (16,487)
-------- --------
64,712 63,051
Supplies .......................... 10,621 10,570
-------- --------
$ 75,333 $ 73,621
======== ========
</TABLE>
3. INCOME TAXES:
The provision for (benefit from) income taxes for the quarters ended
October 31, 1999 and 1998 are summarized by the following effective tax rate
reconciliations:
<TABLE>
<CAPTION>
Quarter ended October 31,
-------------------------
1999 1998
------ ------
<S> <C> <C>
Federal statutory tax rate...................... 35.0 % (35.0)%
Effect of:
State taxes, net of federal benefit........ 1.4 1.4
Foreign sales corporation benefit ......... (1.6) (1.6)
Other...................................... (1.0) 0.2
------ ------
Effective tax rate ...................... 33.8 % (35.0)%
====== ======
</TABLE>
The income tax provision for the quarter ended October 31, 1999 was
recorded based on the Company's projected effective income tax rate for the
fiscal year ending July 31, 2000.
8
<PAGE> 10
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
4. CONTINGENCIES:
In May 1997, the Company was served with a subpoena issued by a Grand
Jury empanelled by the United States District Court for the Eastern District of
Pennsylvania. The Company was advised by attorneys for the Department of Justice
(DOJ) that the Grand Jury is investigating price fixing by producers of graphite
products in the United States and abroad during the past five years. The Company
is cooperating with the DOJ in the investigation. The DOJ has granted the
Company and certain former and present senior executives the opportunity to
participate in its Corporate Leniency Program and the Company has entered into
an agreement with the DOJ under which the Company and such executives who
cooperate will not be subject to criminal prosecution with respect to the
investigation if charges are issued by the Grand Jury. Under the agreement, the
Company has agreed to use its best efforts to provide for restitution to its
domestic customers for actual damages if any conduct of the Company which
violated the Federal Antitrust Laws in the manufacture and sale of such graphite
products caused damage to such customers.
Subsequent to the initiation of the DOJ investigation, four civil cases
were filed in the United States District Court for the Eastern District of
Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers
for violations of the Sherman Act. These cases, which have been consolidated,
name the Company, UCAR International, Inc. (UCAR), SGL Carbon Corporation (SGL
Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants)
and seek treble damages. On March 30, 1998, a number of purchasers who were
previously included in the purported class of plaintiffs covered by the
consolidated case initiated a separate action in the same District Court which
asserts substantially the same claims and seeks the same relief as the
consolidated case and names the Named Defendants, as well as Showa Denko Carbon,
Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were
previously included in the purported class of plaintiffs covered by the
consolidated case instituted their own actions against the Named Defendants,
Showa Denko and, in several cases, certain present or former related parties of
UCAR and Showa Denko, asserting substantially the same claims and seeking the
same relief as in the consolidated case. Four such actions were filed in the
United States District Court for the Eastern District of Pennsylvania on April
3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action
was filed in the United States District Court for the Northern District of Ohio
on April 17, 1998 but has been transferred to the Eastern District of
Pennsylvania for pre-trial proceedings. Another action was filed in the United
States District Court for the Western District of Pennsylvania on June 17, 1998
but has also been transferred to the Eastern District of Pennsylvania for
pre-trial proceedings. The complaints or amended complaints in some of the cases
have also named as defendants other companies including Mitsubishi Corporation,
Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the
Company was served with a complaint filed by Chaparral Steel Company against the
Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in
state court in Ellis County, Texas alleging violations of various Texas state
antitrust laws and seeking treble damages. Chaparral Steel Company has filed an
amended complaint adding two additional related plaintiffs and a second amended
complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation,
Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and
VAW Carbon GMBH.
The Company has reached settlement agreements representing
approximately 96% of domestic antitrust claims with the class plaintiffs and the
plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998,
May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other
purchasers who had yet to file lawsuits. The settlement agreement with the class
has received preliminary approval by the Court but is still subject to final
approval. The settlement with the class plaintiffs, which contemplates possible
payments to certain foreign purchasers, allows the Company to terminate the
settlement if the claims of foreign purchasers who opt out of the class
settlement exceed certain levels and allows the class plaintiffs to terminate
the settlement agreement if the Company's sales to certain foreign purchasers,
as defined in the settlement agreement, exceed certain levels.
9
<PAGE> 11
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
Although various of the settlements are unique, in the aggregate they consist
generally of current and deferred cash payments and, in a number of cases,
provisions which provide for additional payments under certain circumstances
("most favored nations" provisions). In addition to the settlements discussed
above, the Company may also settle with various additional purchasers.
On February 10, 1999, a U.S. corporation which allegedly made purchases
on behalf of two foreign entities and a group of 22 foreign purchasers which are
based in several foreign countries filed a complaint against the Company, UCAR,
SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd.,
SEC Corporation and certain present and former related parties of UCAR in United
States District Court for the Eastern District of Pennsylvania. This complaint
has been amended to add four additional defendants. On September 24, 1999, three
Australian companies and one New Zealand company filed a complaint against the
same parties as are named in the lawsuit filed on February 10, 1999. These cases
assert substantially the same claims and seek the same relief as the
consolidated case. Other foreign purchasers have also made similar claims
against the Company but have not filed lawsuits. The Company understands that
defendants UCAR and Showa Denko have reached settlement agreements with the
class action plaintiffs, which have been approved by the court, and have also
settled claims brought by various individual purchasers. The Company further
understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler,
Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have agreed to plead
or have pleaded guilty to antitrust conspiracy charges filed by the DOJ and have
agreed to or been ordered to pay fines and, in the case of Messrs. Krass and
Hart, have agreed to serve prison sentences, in connection with those guilty
pleas or agreements to plead guilty.
The Company has also advised the Commission of the European Communities
(the European Commission) that it wishes to invoke its Leniency Notice.
Generally under these guidelines, the European Commission may reduce fines and
other penalties if a company sufficiently cooperates with the European
Commission. The Company understands that the European Commission will determine
fines, if any, at the completion of its proceedings.
On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the
Ontario Court (General Division) claiming a conspiracy and violations of the
Canadian Competition Act. The Canadian lawsuit names the Named Defendants and
Showa Denko, as well as several present or former parents, subsidiaries and/or
affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer
Law Division (Canadian Division) has initiated an inquiry and the Company is
cooperating fully with the authorities conducting that inquiry pursuant to an
agreement with the Director of Research and Investigation of the Canadian
Division under which the Company and its present and former officers, directors
and employees will not be subject to criminal prosecution.
During fiscal 1998, the Company recorded a $38 million pre-tax charge
($25 million after expected tax benefits) for potential liabilities resulting
from civil lawsuits, claims, legal costs and other expenses associated with the
pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999,
the Company recorded an additional $7.0 million charge ($4.5 million after
expected tax benefits) for such potential liabilities (the Supplemental
Antitrust Charge). The combined $45.0 million charge (the Antitrust Charge)
represents the Company's estimate, based on current facts and circumstances, of
the expected cost to resolve pending antitrust claims. The Company understands
that defendants UCAR and Showa Denko have reached settlements with the class
action plaintiffs and various individual purchasers at amounts substantially
higher than the levels contemplated in the Antitrust Charge. In light of these
and other developments including: (a) possible future settlements with other
purchasers and the effect of the possible additional payments ("most favored
nations") noted above, (b) the outcome of the European Commission antitrust
investigation, (c) potential additional lawsuits by foreign purchasers, (d) the
failure to satisfy the conditions to the class action settlement, and (e)
adverse rulings or judgments in pending litigation, the antitrust matters could
result in aggregate liabilities and costs which could
10
<PAGE> 12
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
differ materially and adversely from the Antitrust Charge and could affect the
Company's financial condition and its ability to service its currently planned
liquidity needs. As of October 31, 1999, $25.0 million in antitrust settlements
and costs had been paid.
The Company is also involved in various legal proceedings considered
incidental to the conduct of its business or otherwise not material in the
judgement of management. Management does not believe that its loss exposure
related to these cases is materially greater than amounts provided in the
consolidated balance sheet as of October 31, 1999. As of October 31, 1999, a
$0.2 million reserve has been recorded to provide for estimated exposure on
claims for which a loss is deemed probable.
5. LONG-TERM DEBT:
In connection with the tender of substantially all of the Company's
11.5% Senior Notes in fiscal 1998, the Company entered into an agreement with a
consortium of banks led by PNC Bank for a $150 million revolving credit facility
with a $15 million sub-limit for letters of credit which will expire in
December, 2003 (as amended, the 1997 Revolving Credit Facility). Interest under
the 1997 Revolving Credit Facility is based on, at the option of the Company,
either PNC Bank's prime rate or a floating LIBOR rate plus a spread based on a
leverage calculation (specifically, the Consolidated Total Indebtedness to
EBITDA Ratio). As of October 31, 1999, the interest rate on borrowings
outstanding under the 1997 Revolving Credit Facility was 6.8%. Repayment of
funds borrowed under the credit agreement is not required until the expiration
of the facility. The most restrictive covenants under the 1997 Revolving Credit
Facility include a maximum Consolidated Total Indebtedness to EBITDA Ratio of
3.75 to 1.0, a minimum Interest Coverage Ratio of 3.5 to 1.0 and a minimum
Consolidated Tangible Net Worth, all as defined in the 1997 Revolving Credit
Facility agreement. The 1997 Revolving Credit Facility agreement, as amended,
excludes the Antitrust Charge from EBITDA for both pricing and covenant
calculation purposes. The 1997 Revolving Credit Facility is collateralized with
receivables, inventory and substantially all of the Company's property, plant
and equipment. As of October 31, 1999, the Company had $30.0 million available
under the 1997 Revolving Credit Facility. As of October 31, 1999, borrowings
totaled $113.2 million and outstanding letters of credit were $6.8 million.
Effective December 10, 1999, the Company amended its 1997 Revolving
Credit Facility. The amendment temporarily reduces the minimum Interest Coverage
Ratio, reduces the minimum Consolidated Tangible Net Worth requirement and
temporarily increases the maximum Consolidated Total Indebtedness to EBITDA
Ratio to accommodate the expected impact of a working capital improvement
program being implemented by the Company during fiscal 2000. Interest costs on
the 1997 Revolving Credit Facility will be calculated based on a floating LIBOR
rate plus 2.25% until the Interest Coverage Ratio increases above 3.50 to 1.0
and the Consolidated Total Indebtedness to EBITDA Ratio decreases below 3.75 to
1.0. Commitments for borrowings under the 1997 Revolving Credit Facility will be
reduced from $150 million to $140 million as of January 31, 2000 and the Company
will have the option to complete its remaining $4.3 million share repurchase
program through the end of fiscal 2000 if it achieves certain debt levels.
11
<PAGE> 13
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
6. OTHER ITEMS:
OTHER EXPENSE
During the quarter ended October 31, 1998, the Company announced plans
to close certain baking and graphitizing operations at its St. Marys,
Pennsylvania plant. Other expense in the quarter ended October 31, 1998
represents an $8.0 million pre-tax charge to provide for the estimated cost of
the facility closure activities. Included in this charge is $5.7 million for the
net write-off of impaired fixed assets and spare parts inventory, $1.4 million
for hourly and salary workforce severance costs and $0.9 million in other
closure-related costs. Essentially all of these costs were funded during the
Company's fiscal year ended July 31, 1999.
12
<PAGE> 14
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
7. SEGMENT INFORMATION:
Information about the Company's reportable segments as of October 31
and July 31, 1999 and for the quarters ended October 31, 1999 and 1998 follows
(amounts in thousands):
<TABLE>
<CAPTION>
Quarter Ended October 31,
---------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Net sales to customers:
Graphite electrode products ............................................ $39,654 $53,503
Calcium carbide products ............................................... 11,469 15,849
------------------ ------------------
Total net sales to customers ....................................... 51,123 69,352
------------------ ------------------
Intersegment sales, at prevailing market prices:
Graphite electrode products ............................................ 24 47
Eliminations ........................................................... (24) (47)
------------------ ------------------
Total net sales .................................................... $51,123 $69,352
================== ==================
Operating income (loss):
Graphite electrode products (a) ........................................ $3,676 $6,776
Calcium carbide products ............................................... 862 1,436
Unallocated corporate expenses ......................................... (1,098) (9,819)
------------------ ------------------
Operating income (loss) ............................................ 3,440 ($1,607)
================== ==================
Depreciation and amortization:
Graphite electrode products ........................................... $4,507 $3,994
Calcium carbide products ............................................... 411 399
Unallocated corporate .................................................. 42 45
------------------ ------------------
Total depreciation and amortization ................................ $4,960 $4,438
================== ==================
EBITDA: (b)
Graphite electrode products ........................................... $8,183 $10,770
Calcium carbide products ............................................... 1,273 1,835
Unallocated corporate .................................................. (1,056) (1,731)
------------------ ------------------
Total EBITDA ....................................................... $8,400 $10,874
================== ==================
October 31, July 31,
1999 1999
------------------ ------------------
Total assets:
Graphite electrode products ........................................... $226,336 $224,773
Calcium carbide products ............................................... 28,303 27,888
Corporate assets ....................................................... 15,563 21,755
------------------ ------------------
Total assets ....................................................... $270,202 $274,416
================== ==================
</TABLE>
(a) Excludes other expenses in the quarter ended October 31, 1998 which are
included in "unallocated corporate expenses" (See Note 6).
(b) EBITDA is defined as operating income (loss) before depreciation and
amortization and other expenses. EBITDA is not presented as a measure
of operating results under generally accepted accounting principles.
However, management believes that EBITDA is an appropriate measure of
the Company's ability to service its cash requirements. EBITDA is an
important measure in assessing the performance of the Company's
business segments.
13
<PAGE> 15
PART I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE FISCAL FIRST QUARTER ENDED OCTOBER 31, 1999 VERSUS
1998
The following table sets forth certain financial information for the
quarters ended October 31, 1999 and 1998 and should be read in conjunction with
the Unaudited Condensed Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Form 10-Q:
<TABLE>
<CAPTION>
Quarter Ended October 31,
--------------------------------
1999 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Net sales:
Graphite electrode products ......................................... $39,654 $53,503
Calcium carbide products ............................................ 11,469 15,849
-------------- -------------
Total net sales ............................................... $51,123 $69,352
============== =============
Percentage of net sales:
Graphite electrode products ......................................... 77.6 % 77.1 %
Calcium carbide products ............................................ 22.4 22.9
-------------- -------------
Total net sales ............................................... 100.0 % 100.0 %
============== =============
Gross profit as a percentage of segment net sales:
Graphite electrode products ......................................... 12.7 % 15.2 %
Calcium carbide products ............................................ 12.0 12.1
Percentage of total net sales:
Total gross profit .................................................. 12.6 % 14.4 %
Selling, general and administrative ................................. 5.8 5.2
Operating income (loss) ............................................. 6.7 (2.3)
Net income (loss) ................................................... 1.7 (2.9)
</TABLE>
----------------
Net sales for the quarter ended October 31, 1999 were $51.1 million
versus $69.4 million in the prior year comparable quarter, a 26.3% decrease.
Graphite electrode product sales decreased 25.9% from the prior year comparable
quarter to $39.7 million, while calcium carbide product sales decreased 27.6% to
$11.5 million.
Within the graphite electrode products segment, graphite electrode net
sales were $30.5 million, a 21.8% decrease resulting from a 10.9% decrease in
electrode shipments and a 12.3% decrease in average electrode prices. Weakness
in certain regions of the global economy continued to have a negative impact on
graphite electrode demand during the quarter ended October 31, 1999. Graphite
electrode shipments totaled 26.8 million pounds versus 30.0 million pounds in
last year's first quarter. Domestic and foreign electrode shipments as a
percentage of total electrode shipments for the quarter ended October 31, 1999
were 54.6% and 45.4%, respectively, versus 54.9% and 45.1%, respectively, in
last year's first quarter. Domestic graphite electrode prices decreased 9.4% in
the current quarter as compared to last year's first quarter as weakness in the
U.S. steel industry during the second half of 1998 and first half of 1999
negatively impacted domestic pricing. Average foreign electrode prices deceased
16.8% in the current quarter versus last year's first quarter due to the
continued strength of the U.S. dollar against
14
<PAGE> 16
the Euro and weaker demand overseas during the first half of 1999. The Company
expects demand for graphite electrodes to improve throughout the remainder of
fiscal 2000 as the global economy improves and world-wide production of electric
arc furnace steel increases. This trend is expected to result in an increase in
graphite electrode shipments in fiscal 2000 as compared to fiscal 1999. Needle
coke sales were $4.8 million versus $8.6 million a year ago, with the decrease
resulting from a 32.0% decrease in needle coke shipments and a 16.7% decrease in
average needle coke prices. Shipments and average prices for needle coke were
lower during the current quarter due to weaker demand for needle coke that was
primarily the result of lower demand for and production of graphite electrodes.
A higher mix of foreign shipments during the current quarter also negatively
impacted average needle coke prices. Graphite specialty product sales during the
quarter ended October 31, 1999 were $4.3 million versus $6.0 million in the
prior year comparable quarter. The decrease in sales was attributable to a
decrease in bulk and granular graphite shipments.
Within the calcium carbide products segment, acetylene sales (which
includes pipeline acetylene and calcium carbide for fuel gas applications)
decreased 42.2% to $5.5 million for the quarter ended October 31, 1999. The
decrease in sales was due to lower shipments. ISP, the Company's largest
pipeline acetylene customer, reduced their demand for the Company's acetylene
during fiscal 1999 by approximately 75% of its historical levels. This reduction
in demand continued into the quarter ended October 31, 1999 and may be
permanent. Scheduled maintenance outages by the Company's pipeline acetylene
customers also negatively impacted demand during the current quarter. Sales of
calcium carbide for metallurgical applications were $4.5 million which was 14.8%
lower than last year's comparable quarter. Weakness in the domestic steel market
as well as substitute products had a negative impact on demand for calcium
carbide for metallurgical applications. Net sales of acetylene and calcium
carbide for metallurgical applications are expected to remain at lower levels
throughout fiscal 2000 and, potentially, beyond as a result of increased
competition and weak demand in these product lines.
Gross profit as a percentage of graphite electrode product sales for
the quarter ended October 31, 1999 was 12.7% versus 15.2% in the prior year
comparable quarter. The decrease in the gross margin was primarily the result of
lower shipments of and net prices for graphite electrodes and needle coke. In
addition, Seadrift Coke, L.P. took a scheduled maintenance outage during the
current quarter that negatively impacted plant operating efficiency. Also,
depreciation and amortization was $0.5 million higher during the current
quarter, which negatively impacted the gross profit margin by 1.0%. Gross profit
as a percentage of calcium carbide product sales was essentially unchanged as
compared to last year's first quarter at 12.0%.
Selling, general and administrative expenses for the quarter ended
October 31, 1999 were $3.0 million versus $3.6 million in last year's comparable
quarter. The decrease was primarily due to the cost saving initiative
implemented by the Company during fiscal 1999.
During the quarter ended October 31, 1998, the Company announced plans
to close certain baking and graphitizing operations at its St. Marys,
Pennsylvania plant resulting in a 12% reduction in the Company's graphite
electrode production capacity. Other expense in the quarter ended October 31,
1998 represents an $8.0 million pre-tax charge to provide for the estimated cost
of the facility closure activities. Included in this charge is $5.7 million for
the net write-off of impaired fixed assets and spare parts inventory, $1.4
million for hourly and salary workforce severance costs and $0.9 million in
other closure-related costs.
Net interest expense for the quarter ended October 31, 1999 was $2.1
million representing interest, amortization and fees associated with the
Company's revolving credit facility. Net interest expense for the quarter ended
October 31, 1998 was $1.5 million and included $2.0 million of interest and
amortization expense associated with the Company's revolving credit facility,
less $0.5 million of capitalized interest.
The income tax provision for the quarter ended October 31, 1999 was
recorded based on the Company's projected effective income tax rate for the
fiscal year ending July 31, 2000. The current year effective rate differs
15
<PAGE> 17
differs from the federal statutory rate due primarily to state taxes, offset by
benefits derived from the Company's foreign sales corporation.
During the quarter ended October 31, 1999, the Company announced that
it was implementing a working capital improvement program during fiscal 2000.
While this program is expected to have a positive effect on operating cash
flows, the program may result in the Company reporting a net loss from
operations for the quarters ending January 31, 2000 and April 30, 2000 and for
the fiscal year ending July 31, 2000. See a more detailed description of the
Company's working capital improvement program under "Liquidity and Capital
Resources" below.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company is required to adopt Statement of Financial Accounting
Standards #133, "Accounting for Derivative Instruments and Hedging Activities"
(SFAS #133) for all of the quarters in its fiscal year ending July 31, 2001.
SFAS #133 establishes accounting and reporting standards for derivatives and
hedging activities. The Company has not yet completed its evaluation of the
financial accounting and reporting impact of SFAS #133.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for capital expenditures,
working capital (including antitrust settlements) and debt service on its
revolving credit facility. The weakness in certain regions of the global economy
and its impact on demand for the Company's products has resulted in the
deferment of certain discretionary capital projects. The Company currently
estimates that it will spend approximately $10 million in capital improvements
during its fiscal year ending July 31, 2000. In addition, the Company currently
estimates that it will fund approximately $20 million in antitrust payments
during fiscal 2000. The recent increase in prices of oil (a major raw material
for the Company's needle coke affiliate, Seadrift Coke, L.P.) has resulted in an
increased working capital requirement for this raw material.
During the quarter ended October 31, 1999, the Company announced that
it was implementing a working capital improvement program during fiscal 2000. In
connection with this program, the Company has temporarily reduced graphite
electrode and needle coke production in order to reduce inventory levels and
further improve the Company's cost structure. This program is expected to have a
positive effect on operating cash flows as cash outflows for raw materials,
labor and utilities will be reduced during the period of lower production.
However, the program is expected to have a negative impact on the Company's
operating results during the period of reduced production, as the Company will
not realize operating efficiencies typical of higher levels of production. This
situation may result in the Company reporting a net loss from operations for the
quarters ending January 31, 2000 and April 30, 2000 and for the fiscal year
ending July 31, 2000. The program has resulted in the temporary layoff of
approximately 180 employees.
The Company believes that its cash flows from operations (including the
expected benefits of its working capital improvement initiative described above)
and availability under its revolving credit facility (as amended and more fully
described below) will be sufficient to fund all of its currently planned
liquidity needs through at least the expiration of its revolving credit facility
in December 2003. However, the terms and conditions of any settlements of
pending antirust claims may adversely impact the Company's expected liquidity
needs. Also, the Company's expected cash flows from operations could be
negatively impacted if weak demand for the Company's products continues or
increased oil costs continue for an extended period of time. In the event that
such resources are not available to fund the Company's planned capital
expenditures, service its indebtedness and pay any other obligation including
those that may arise from pending legal proceedings and the resolution of
current antitrust matters, the Company may be required to refinance or
renegotiate its revolving credit facility, obtain additional funding or
16
<PAGE> 18
further delay discretionary capital projects. If the Company were required to
refinance or renegotiate its revolving credit facility or obtain additional
funding to satisfy its liquidity needs, there can be no assurance that funds
would be available in amounts sufficient for the Company to meet its obligations
or on terms favorable to the Company.
In connection with the tender of substantially all of the Company's
11.5% Senior Notes in fiscal 1998, the Company entered into an agreement with a
consortium of banks led by PNC Bank for a $150 million revolving credit facility
with a $15 million sub-limit for letters of credit which will expire in
December, 2003 (as amended, the 1997 Revolving Credit Facility). Interest under
the 1997 Revolving Credit Facility is based on, at the option of the Company,
either PNC Bank's prime rate or a floating LIBOR rate plus a spread based on a
leverage calculation (specifically, the Consolidated Total Indebtedness to
EBITDA Ratio). As of October 31, 1999, the interest rate on borrowings
outstanding under the 1997 Revolving Credit Facility was 6.8%. Repayment of
funds borrowed under the credit agreement is not required until the expiration
of the facility. The most restrictive covenants under the 1997 Revolving Credit
Facility include a maximum Consolidated Total Indebtedness to EBITDA Ratio of
3.75 to 1.0, a minimum Interest Coverage Ratio of 3.5 to 1.0 and a minimum
Consolidated Tangible Net Worth, all as defined in the 1997 Revolving Credit
Facility agreement. The 1997 Revolving Credit Facility agreement, as amended,
excludes the Antitrust Charge from EBITDA for both pricing and covenant
calculation purposes. The 1997 Revolving Credit Facility is collateralized with
receivables, inventory and substantially all of the Company's property, plant
and equipment. As of October 31, 1999, the Company had $30.0 million available
under the 1997 Revolving Credit Facility. As of October 31, 1999, borrowings
totaled $113.2 million and outstanding letters of credit were $6.8 million.
Effective December 10, 1999, the Company amended its 1997 Revolving
Credit Facility. The amendment temporarily reduces the minimum Interest Coverage
Ratio, reduces the minimum Consolidated Tangible Net Worth requirement and
temporarily increases the maximum Consolidated Total Indebtedness to EBITDA
Ratio to accommodate the expected net losses from operations during the quarters
ending January 31, 2000 and April 30, 2000. Interest costs on the 1997 Revolving
Credit Facility will be calculated based on a floating LIBOR rate plus 2.25%
until the Interest Coverage Ratio increases above 3.50 to 1.0 and the
Consolidated Total Indebtedness to EBITDA Ratio decreases below 3.75 to 1.0.
Commitments for borrowings under the 1997 Revolving Credit Facility will be
reduced from $150 million to $140 million as of January 31, 2000 and the Company
will have the option to complete its remaining $4.3 million share repurchase
program through the end of fiscal 2000 if it achieves certain debt levels.
During fiscal 1998, the Company's Board of Directors authorized the
expenditure of up to $10 million to repurchase the Company's Common Stock.
Subject to price and market considerations and applicable securities laws, such
purchases may be made from time to time in open market, privately negotiated or
other transactions. No time limit was placed on the duration of the repurchase
program. The extent and timing of any repurchases will depend on market
conditions and other corporate considerations, including the Company's liquidity
needs. As of October 31, 1999, the Company had repurchased 467,200 shares of
Common Stock at a total cost of $5.7 million.
CASH FLOW INFORMATION
Cash flow used by operations for the quarter ended October 31, 1999 was
$0.8 million. Cash inflows from net income plus non-cash items of $5.9 million
were offset by net cash outflows from changes in working capital items,
including cash outflows of $2.7 million for accounts receivable, $1.7 million
for inventory and $9.9 million for trade accounts payable and accrued expenses.
Net interest payments during the quarter totaled $1.9 million and the Company
received a $6.8 million net income tax refund during the quarter ended October
31, 1999.
Investing activities for the quarter ended October 31, 1999 included
capital expenditures of $3.1 million. Cash flow provided by financing activities
for the quarter ended October 31, 1999 was $3.9 million, including $2.7 million
from the 1997 Revolving Credit Facility.
17
<PAGE> 19
OTHER ITEMS
ENVIRONMENTAL
In the process of developing permit applications for facility upgrades
at the St. Marys, PA graphite plant, the Company determined that certain
parameters in its air permits do not reflect current operations. The Company has
advised the appropriate state environmental authorities. The Company is in the
process of preparing a proposed plan of action to achieve resolution of this
issue. Such plan of action will include the installation and ongoing operation
of an air emissions scrubbing unit. A preliminary cost estimate for this unit is
approximately $3.0 million installed, plus $0.5 million per year in ongoing cash
operating costs. The Company believes that certain costs are subject to
reimbursement under an environmental indemnity agreement the Company has with
The BOC Group, plc, the predecessor to the Company. It is unclear whether or not
the state will levy a fine in connection with this issue.
YEAR 2000 COMPLIANCE
The Company has modified, upgraded and replaced certain components of
its computer software, operating systems and manufacturing process control
systems to accommodate the Year 2000 changes required for correct recording of
dates in the year 2000 and beyond. The Company has adopted a comprehensive Year
2000 compliance action plan that includes (i) inventorying all of its
information technology (IT) systems, manufacturing process control systems and
non-IT systems, (ii) assessing these systems and resources for Year 2000
compliance, (iii) remedying and replacing non-compliant systems, (iv) testing
upgraded systems for compliance, and (v) developing contingency plans. The
Company has substantially completed its Year 2000 compliance program, and, while
the Company continues to test and refine its contingency plans, the Company's
significant IT and non-IT systems are Year 2000 compliant. The Company does not
expect to experience significant operational problems associated with Year 2000
compliance.
The Company continues to evaluate the Year 2000 compliance programs of
its critical customers, suppliers and service providers in an attempt to
determine the adequacy of their programs in addressing the Year 2000 issue. This
evaluation includes the distribution of questionnaires to such parties and the
development of contingency plans that assume the failure of a third party
critical to the Company's business. The Company believes that the most
reasonably likely worst-case scenario for the Company with respect to the Year
2000 issue is the failure of a critical vendor, including but not limited to a
utility supplier, or the failure of a critical customer, including electric arc
furnace steel producers who use a substantial amount of power in their
production process. A failure by a critical supplier or group of critical
customers could negatively impact sales, profits and cash flows. The Company
believes that the formulation of contingency plans will help mitigate exposure
and losses should such a failure occur. However, because the Company's overall
Year 2000 compliance is contingent upon the readiness of its critical vendors
and customers, there can be no assurance that the Company's Year 2000 compliance
programs will adequately address Year 2000 issues not under its direct control.
FORWARD-LOOKING STATEMENTS
This report may contain forward-looking statements that are based on
current expectations, estimates and projections about the industries in which
the Company operates, management's beliefs and assumptions made by management.
Words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, and are subject to the safe harbor created thereby. These
statements are based on a number of assumptions that could ultimately prove
inaccurate and, therefore, there can be no assurance that such statements will
prove to be accurate.
18
<PAGE> 20
Factors that could affect actual future results include the developments related
to the antitrust investigations by the DOJ, the antitrust enforcement
authorities of the European Union or related civil lawsuits as well as the
assertion of other claims relating to such investigations or lawsuits or the
subject matter thereof. While the Company believes that the antitrust reserve is
adequate, there can be no assurance that future developments or other factors
might not adversely affect current estimates. Such factors also include the
possibility that increased demand or prices for the Company's products may not
occur or continue, the success of the Company's working capital improvement
initiative, changing economic and competitive conditions (including currency
exchange rate and commodity pricing fluctuations), technological risks and other
risks, costs and delays associated with the start-up and operation of major
capital projects (including the Company's modernization program), changing
governmental regulations (including environmental rules and regulations) and
other risks and uncertainties, including those detailed in this and the
Company's other filings with the Securities and Exchange Commission. Neither the
statements contained in this report nor any reserve or charge recorded by the
Company relating to civil lawsuits or claims shall be deemed to constitute an
admission as to any liability in connection with the subject matter thereof. The
Company does not undertake to publicly update any forward-looking statement,
whether as a result of new information, future events or otherwise.
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have not been any material changes in the Company's exposures to
market risk during the quarter ended October 31, 1999 which would require an
update to the disclosures provided in the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1999.
19
<PAGE> 21
PART II
Item 1
LEGAL PROCEEDINGS
In May 1997, the Company was served with a subpoena issued by a Grand
Jury empanelled by the United States District Court for the Eastern District of
Pennsylvania. The Company was advised by attorneys for the Department of Justice
(DOJ) that the Grand Jury is investigating price fixing by producers of graphite
products in the United States and abroad during the past five years. The Company
is cooperating with the DOJ in the investigation. The DOJ has granted the
Company and certain former and present senior executives the opportunity to
participate in its Corporate Leniency Program and the Company has entered into
an agreement with the DOJ under which the Company and such executives who
cooperate will not be subject to criminal prosecution with respect to the
investigation if charges are issued by the Grand Jury. Under the agreement, the
Company has agreed to use its best efforts to provide for restitution to its
domestic customers for actual damages if any conduct of the Company which
violated the Federal Antitrust Laws in the manufacture and sale of such graphite
products caused damage to such customers.
Subsequent to the initiation of the DOJ investigation, four civil cases
were filed in the United States District Court for the Eastern District of
Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers
for violations of the Sherman Act. These cases, which have been consolidated,
name the Company, UCAR International, Inc. (UCAR), SGL Carbon Corporation (SGL
Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants)
and seek treble damages. On March 30, 1998, a number of purchasers who were
previously included in the purported class of plaintiffs covered by the
consolidated case initiated a separate action in the same District Court which
asserts substantially the same claims and seeks the same relief as the
consolidated case and names the Named Defendants, as well as Showa Denko Carbon,
Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were
previously included in the purported class of plaintiffs covered by the
consolidated case instituted their own actions against the Named Defendants,
Showa Denko and, in several cases, certain present or former related parties of
UCAR and Showa Denko, asserting substantially the same claims and seeking the
same relief as in the consolidated case. Four such actions were filed in the
United States District Court for the Eastern District of Pennsylvania on April
3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action
was filed in the United States District Court for the Northern District of Ohio
on April 17, 1998 but has been transferred to the Eastern District of
Pennsylvania for pre-trial proceedings. Another action was filed in the United
States District Court for the Western District of Pennsylvania on June 17, 1998
but has also been transferred to the Eastern District of Pennsylvania for
pre-trial proceedings. The complaints or amended complaints in some of the cases
have also named as defendants other companies including Mitsubishi Corporation,
Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the
Company was served with a complaint filed by Chaparral Steel Company against the
Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in
state court in Ellis County, Texas alleging violations of various Texas state
antitrust laws and seeking treble damages. Chaparral Steel Company has filed an
amended complaint adding two additional related plaintiffs and a second amended
complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation,
Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and
VAW Carbon GMBH.
The Company has reached settlement agreements representing
approximately 96% of domestic antitrust claims with the class plaintiffs and the
plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998,
May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other
purchasers who had yet to file lawsuits. The settlement agreement with the class
has received preliminary approval by the Court but is still subject to final
approval. The settlement with the class plaintiffs, which contemplates possible
payments to certain foreign purchasers, allows the Company to terminate the
settlement if the claims of foreign purchasers who opt out of the class
settlement exceed certain levels and allows the class plaintiffs to terminate
the settlement agreement if the Company's sales to certain foreign purchasers,
as defined in the settlement agreement, exceed certain levels.
20
<PAGE> 22
Although various of the settlements are unique, in the aggregate they consist
generally of current and deferred cash payments and, in a number of cases,
provisions which provide for additional payments under certain circumstances
("most favored nations" provisions). In addition to the settlements discussed
above, the Company may also settle with various additional purchasers.
On February 10, 1999, a U.S. corporation which allegedly made purchases
on behalf of two foreign entities and a group of 22 foreign purchasers which are
based in several foreign countries filed a complaint against the Company, UCAR,
SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd.,
SEC Corporation and certain present and former related parties of UCAR in United
States District Court for the Eastern District of Pennsylvania. This complaint
has been amended to add four additional defendants. On September 24, 1999, three
Australian companies and one New Zealand company filed a complaint against the
same parties as are named in the lawsuit filed on February 10, 1999. These cases
assert substantially the same claims and seek the same relief as the
consolidated case. Other foreign purchasers have also made similar claims
against the Company but have not filed lawsuits. The Company understands that
defendants UCAR and Showa Denko have reached settlement agreements with the
class action plaintiffs, which have been approved by the court, and have also
settled claims brought by various individual purchasers. The Company further
understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler,
Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have agreed to plead
or have pleaded guilty to antitrust conspiracy charges filed by the DOJ and have
agreed to or been ordered to pay fines and, in the case of Messrs. Krass and
Hart, have agreed to serve prison sentences, in connection with those guilty
pleas or agreements to plead guilty.
The Company has also advised the Commission of the European Communities
(the European Commission) that it wishes to invoke its Leniency Notice.
Generally under these guidelines, the European Commission may reduce fines and
other penalties if a company sufficiently cooperates with the European
Commission. The Company understands that the European Commission will determine
fines, if any, at the completion of its proceedings.
On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the
Ontario Court (General Division) claiming a conspiracy and violations of the
Canadian Competition Act. The Canadian lawsuit names the Named Defendants and
Showa Denko, as well as several present or former parents, subsidiaries and/or
affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer
Law Division (Canadian Division) has initiated an inquiry and the Company is
cooperating fully with the authorities conducting that inquiry pursuant to an
agreement with the Director of Research and Investigation of the Canadian
Division under which the Company and its present and former officers, directors
and employees will not be subject to criminal prosecution.
During fiscal 1998, the Company recorded a $38 million pre-tax charge
($25 million after expected tax benefits) for potential liabilities resulting
from civil lawsuits, claims, legal costs and other expenses associated with the
pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999,
the Company recorded an additional $7.0 million charge ($4.5 million after
expected tax benefits) for such potential liabilities (the Supplemental
Antitrust Charge). The combined $45.0 million charge (the Antitrust Charge)
represents the Company's estimate, based on current facts and circumstances, of
the expected cost to resolve pending antitrust claims. The Company understands
that defendants UCAR and Showa Denko have reached settlements with the class
action plaintiffs and various individual purchasers at amounts substantially
higher than the levels contemplated in the Antitrust Charge. In light of these
and other developments including: (a) possible future settlements with other
purchasers and the effect of the possible additional payments ("most favored
nations") noted above, (b) the outcome of the European Commission antitrust
investigation, (c) potential additional lawsuits by foreign purchasers, (d) the
failure to satisfy the conditions to the class action settlement, and (e)
adverse rulings or judgments in pending litigation, the antitrust matters could
result in aggregate liabilities and costs which could differ materially and
adversely from the Antitrust Charge and could affect the Company's financial
condition and its ability to service its currently planned liquidity needs. As
of October 31, 1999, $25.0 million in antitrust settlements and costs had been
paid.
21
<PAGE> 23
The Company is also involved in various legal proceedings considered
incidental to the conduct of its business or otherwise not material in the
judgement of management. Management does not believe that its loss exposure
related to these cases is materially greater than amounts provided in the
consolidated balance sheet as of October 31, 1999. As of October 31, 1999, a
$0.2 million reserve has been recorded to provide for estimated exposure on
claims for which a loss is deemed probable.
22
<PAGE> 24
PART II
Item 6
EXHIBITS AND REPORTS ON FORM 8-K
A. INDEX TO EXHIBITS
10.32 Fifth Amendment to the Revolving Credit and Letter of Credit Issuance
Agreement among The Carbide/Graphite Group, Inc., the Lenders which are
Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the
Agent for the Lenders dated December 10, 1999
27 Financial Data Schedule
B. REPORTS ON FORM 8-K
During the quarter ended October 31, 1999, the Company filed a Current
Report on Form 8-K which reflected the Company's press release reporting the
resignation of James G. Baldwin as a director of the Company.
23
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the following authorized officers on December 14, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -----------------------------------------------------------------------------------------------------------------
<S> <C>
/S/ WALTER B. FOWLER CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)
- -----------------------------------------------------
(WALTER B. FOWLER)
/S/ STEPHEN D. WEAVER VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER
- ----------------------------------------------------- (PRINCIPAL FINANCIAL OFFICER)
(STEPHEN D. WEAVER)
/S/ JEFFREY T. JONES CONTROLLER - CORPORATE FINANCE
- ----------------------------------------------------- (PRINCIPAL ACCOUNTING OFFICER)
(JEFFREY T. JONES)
VICE PRESIDENT AND GENERAL MANAGER,
/S/ MICHAEL F. SUPON ELECTRODES AND GRAPHITE SPECIALTY PRODUCTS
- -----------------------------------------------------
(MICHAEL F. SUPON)
VICE PRESIDENT AND GENERAL MANAGER,
/S/ ARARAT HACETOGLU CARBIDE PRODUCTS
- -----------------------------------------------------
(ARARAT HACETOGLU)
VICE PRESIDENT AND GENERAL MANAGER,
/S/ JIM J. TRIGG SEADRIFT COKE, L.P.
- -----------------------------------------------------
(JIM J. TRIGG)
</TABLE>
24
<PAGE> 1
Exhibit 10.32
FIFTH AMENDMENT TO REVOLVING CREDIT
AND LETTER OF CREDIT ISSUANCE AGREEMENT
This FIFTH AMENDMENT TO REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE
AGREEMENT is made as of this 10th day of December, 1999 (the "Fifth Amendment")
and entered into by and among THE CARBIDE/GRAPHITE GROUP, INC., a corporation
organized and existing under the laws of the State of Delaware (the "Borrower"),
the financial institutions party thereto as lenders (collectively referred to
herein as the "Lenders"), PNC BANK, NATIONAL ASSOCIATION, in its capacity as the
issuer of letters of credit (in such capacity, the "L/C Issuer") and PNC BANK,
NATIONAL ASSOCIATION, in its capacity as agent for the Lenders and the L/C
Issuer (in such capacity, the "Agent") and further amends that certain Revolving
Credit and Letter of Credit Issuance Agreement dated as of September 25, 1997,
as previously amended by that certain First Amendment to Revolving Credit and
Letter of Credit Issuance Agreement dated as of October 28, 1997 (the "First
Amendment"), the Second Amendment to Revolving Credit Agreement and Waiver dated
as of April 30, 1998 (the "Second Amendment"), the Third Amendment to Revolving
Credit and Letter of Credit Issuance Agreement and Amendment to Revolving Credit
Notes dated as of April 30, 1999 (the "Third Amendment"), the Fourth Amendment
to Revolving Credit and Letter of Credit Issuance Agreement dated as of
September 8, 1999 (the "Fourth Amendment") (the Revolving Credit and Letter of
Credit Issuance Agreement, as amended by the First Amendment, the Second
Amendment, the Third Amendment, and the Fourth Amendment is hereinafter referred
to as the "Original Credit Agreement").
WITNESSETH
WHEREAS, due to the implementation of a plan of inventory reduction by
the Borrower, the Borrower has requested certain amendments to the terms of the
Original Credit Agreement to accommodate such plan; and
WHEREAS, the Agent, the Lenders and the L/C Issuer have agreed to make
such amendments upon the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
with the intent to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS TO ORIGINAL CREDIT AGREEMENT
SECTION 1.01 AMENDMENTS TO SECTION 1.01 OF THE ORIGINAL CREDIT
AGREEMENT. The following defined terms and the definitions therefor are hereby
added to Section 1.01 of the Original Credit Agreement and inserted in correct
alphabetical order:
Commodity Hedge shall mean any contract or arrangement; the
purpose or substance of which is to protect the Borrower from the risk
of any change in the price of commodities.
<PAGE> 2
Fifth Amendment shall mean the Fifth Amendment to Revolving
Credit and Letter of Credit Issuance Agreement dated as of the Fifth
Amendment Effective Date.
Fifth Amendment Effective Date shall mean December 10, 1999.
Fifth Amendment Fee shall mean a fee equal to One Hundred
Fifty Thousand Dollars ($150,000), payable pro rata, based on each
Lender's Commitment, to each Lender who approves the Fifth Amendment on
or before December 10, 1999.
Foreign Exchange Hedge shall mean any contract or arrangement;
the purpose or substance of which is to protect the Borrower from the
risk of any change in the price or value of foreign currencies.
SECTION 1.02 MODIFICATION OF EXISTING DEFINED TERM. The definition of
"Lender Obligations" is amended by adding in subsection (iv) thereof,
immediately after the term "Interest Rate Hedge Agreement", the phrase "Foreign
Exchange Hedge or Commodity Hedge".
SECTION 1.03 MODIFICATION OF EXISTING ORIGINAL CREDIT AGREEMENT. The
following Sections of the Original Credit Agreement are amended and restated to
read as follows:
(i) The penultimate sentence of Section 2.01(a) is amended and restated
as follows:
The aggregate amount of the Revolving Credit Commitments prior to
January 31, 2000 shall be $150,000,000, and on and after that date
$140,000,000.
(ii) Add at the conclusion of Subsection 2.03 the following additional
paragraph.
Notwithstanding the foregoing, during the period from the
Fifth Amendment Effective Date to and including October 31, 2000, the
Applicable Commitment Fee for each Lender's Revolving Credit Commitment
shall be 0.375%. Thereafter, so long as, on October 31, 2000, the
Borrower's ratio of EBITDA to Cash Interest Expense (determined on the
basis of the four most recently completed Fiscal Quarters) is equal to
or greater than 3.5 to 1.0, the Applicable Commitment Fee shall be
determined in accordance with the above stated grid. If the Borrower
does not meet or exceed the ratio set forth in the preceding sentence on
October 31, 2000, the Applicable Commitment Fee shall remain at 0.375%
until the Fiscal Quarter end when the Borrower achieves such ratio.
(iii) Add at the conclusion of Subsection 2.08(b)(ii) the following
additional paragraph.
Notwithstanding the foregoing, during the period from the
Fifth Amendment Effective Date to and including October 31, 2000, the
Applicable Euro-Rate Margin on all Revolving Credit Loans outstanding
shall be 2.25%. Thereafter, so long as, on October 31, 2000, the
Borrower's ratio of EBITDA to Cash Interest Expense (determined on the
basis of the four most recently completed Fiscal Quarters) is equal to
or greater than 3.5
-2-
<PAGE> 3
to 1.0, the Applicable Euro-Rate Margin shall be determined in
accordance with the above stated grid. If the Borrower does not meet or
exceed the ratio set forth in the preceding sentence on October 31,
2000, the Applicable Euro-Rate Margin shall remain at 2.25% until the
Fiscal Quarter end when the Borrower achieves such ratio.
(iv) Add at the conclusion of Subsection 2.17(b) the following
additional paragraph.
Notwithstanding the foregoing, during the period from the
Fifth Amendment Effective Date to and including October 31, 2000, the
Applicable Letter of Credit Fee for each Letter of Credit shall be
2.25%. Thereafter, so long as, on October 31, 2000, the Borrower's ratio
of EBITDA to Cash Interest Expense (determined on the basis of the four
most recently completed Fiscal Quarters) is equal to or greater than 3.5
to 1.0, the Applicable Letter of Credit Fee shall be determined in
accordance with the above stated grid. If the Borrower does not meet or
exceed the ratio set forth in the preceding sentence on October 31,
2000, the Applicable Letter of Credit Fee shall remain at 2.25% until
the Fiscal Quarter end when the Borrower achieves such ratio.
(v) Section 7.12 shall be amended and restated in its entirety as
follows:
7.12. Minimum Consolidated Tangible Net Worth. The Borrower
will not at any time (i) after December 10, 1999, through and including
January 31, 2000, permit its Consolidated Tangible Net Worth to be less
than an amount equal to $76,500,000 (less the amount of any purchases
of treasury stock up to $1,300,000 since November 1, 1999); (ii)
$75,500,000 (less the amount of any purchases of treasury stock up to
$2,600,000 since November 1, 1999) from February 1, 2000, through and
including April 30, 2000; and (iii) thereafter the sum of $75,500,000
(less the amount of any purchases of treasury stock up to $4,300,000
between November 1, 1999 and July 31, 2000), plus 50% of the positive
net income for each Fiscal Quarter of the Borrower and its Subsidiaries
ending after May 1, 2000, and determined on a consolidated basis in
accordance with GAAP consistently applied, plus (iv) all increases to
equity from the issuance by the Borrower after the Fifth Amendment
Effective Date of further equity securities or other equity capital
investments.
(vi) Section 7.13 shall be amended and restated in its entirety as
follows:
7.13. Interest Coverage. The Borrower shall not permit its
ratio, measured on a rolling four Fiscal Quarter basis, of EBITDA to
Cash Interest Expense as of the end of each Fiscal Quarter to be less
than (i) 3.25 to 1.0 as of the Fiscal Quarter ending January 31, 2000,
(ii) 2.75 to 1.0 as of the Fiscal Quarter ending April 30, 2000, (iii)
3.0 to 1.0 as of the Fiscal Quarters ending July 31, 2000 and October
31, 2000, (iv) 3.25 to 1.0 as of the Fiscal Quarters ending January 31,
2001 and April 30, 2001, and (v) 3.50 to 1.0 as of the end of each
Fiscal Quarter thereafter beginning with the Fiscal Quarter ending July
31, 2001, provided, however, that for purposes of this Section 7.13,
the Special Reserve may be included in calculating the Borrower's
EBITDA by treating it as an extraordinary or unusual loss pursuant to
item (a)(v) of the definition of EBITDA contained in Section 1.01
hereof; and provided further, however, in determining compliance with
the above financial ratio as of the Fiscal Quarter ending July 31,
2000, the quarterly results of EBITDA and Cash Interest
-3-
<PAGE> 4
Expense for such quarter shall be annualized; as of the Fiscal Quarter
ending October 31, 2000, the quarterly results for the last two
quarters shall be annualized; and as of the Fiscal Quarter ending
January 31, 2001, the quarterly results for the last three quarters
shall be annualized; and for each Fiscal Quarter ending thereafter
compliance shall be determined on a rolling four Fiscal Quarter basis.
(vii) Section 7.14 shall be amended and restated in its entirety as
follows:
7.14 Leverage Ratio. The Borrower shall not permit its Consolidated
Total Indebtedness to EBITDA Ratio during the applicable period or
periods set forth below to be greater than the ratio set forth opposite
each such period or periods:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
CONSOLIDATED TOTAL
PERIOD INDEBTEDNESS TO EBITDA RATIO
- -----------------------------------------------------------------------------------------
<S> <C>
From December 10, 1999 through January 31, 4.50 to 1.0
2000
- -----------------------------------------------------------------------------------------
From February 1, 2000 through April 30, 2000 4.75 to 1.0
- -----------------------------------------------------------------------------------------
From May 1, 2000 through April 29, 2002 3.75 to 1.00
- -----------------------------------------------------------------------------------------
From April 30, 2002 through April 29, 2003 3.50 to 1.00
- -----------------------------------------------------------------------------------------
On and after April 30, 2003 3.00 to 1.00
- -----------------------------------------------------------------------------------------
</TABLE>
In determining compliance with this Section 7.14, the Special Reserve
may be included in calculating the Borrower's EBITDA by treating it as
an extraordinary or unusual loss pursuant to item (a)(v) of the
definition of EBITDA contained in Section 1.01 hereof; provided,
however, in determining compliance with the above financial ratio as of
the Fiscal Quarter ending July 31, 2000, the quarterly results for such
quarter shall be annualized; as of the Fiscal Quarter ending October
31, 2000, the quarterly results for the last two quarters shall be
annualized; and as of the Fiscal Quarter ending January 31, 2001, the
quarterly results for the last three quarters shall be annualized; and
for each Fiscal Quarter ending thereafter compliance shall be
determined on a rolling four Fiscal Quarter basis.
SECTION 1.04 ADDITIONAL SECTION TO EXISTING ORIGINAL CREDIT AGREEMENT.
Add an additional Section 7.18 to the Agreement as follows:
Section 7.18 Stock Repurchase. From the Fifth Amendment
Effective Date to July 31, 2000, the Borrower shall not purchase or
repurchase any of the Borrower's equity securities from its
shareholders except for, on a non-cumulative basis:
(a) $1,300,000 during the Fiscal Quarter ending
January 31, 2000;
(b) up to $2,600,000 from November 1, 1999 to and
including April 30, 2000, but only so long as the Revolving Credit Loan
(not including any Letters of
-4-
<PAGE> 5
Credit outstanding) shall be less than $113,000,000, after taking into
account any uses of the Revolving Credit Loan to make such purchases;
and
(c) up to $4,300,000 from November 1, 1999 to and
including July 31, 2000, but only so long as the Revolving Credit Loan
(not including any Letters of Credit outstanding) shall be less than
$107,000,000, after taking into account any uses of the Revolving
Credit Loan to make such purchases.
SECTION 1.05 NO OTHER AMENDMENTS. Except as specifically set forth
therein, the amendments to the Original Credit Agreement set forth in Sections
1.01 through 1.04 above do not either implicitly or explicitly alter, waive or
amend, the provisions of the Original Credit Agreement. The amendments set forth
in Sections 1.01 through 1.04 hereof do not waive, now or in the future,
compliance with any other covenant, term or condition to be performed or
complied with nor do they impair any rights or remedies of the Lenders and the
Agents under the Original Credit Agreement with respect to any such violation.
ARTICLE II
BORROWER'S SUPPLEMENTAL REPRESENTATIONS
SECTION 2.01. INCORPORATION BY REFERENCE. As an inducement to the
Agent, the Lenders, and the L/C Issuer to enter into this Fifth Amendment, the
Borrower hereby repeats herein for the benefit of the Agent, the Lenders, and
the L/C Issuer the representations and warranties made by the Borrower in
Article IV of the Original Credit Agreement, as amended hereby, except that, for
purposes hereof such representations and warranties shall be deemed to extend to
and cover this Fifth Amendment.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.01 CONDITIONS PRECEDENT. Each of the following shall be a
condition precedent to the effectiveness of this Fifth Amendment:
(i) The Agent shall have received, on or before the Fifth
Amendment Effective Date, the following items, each, unless otherwise indicated,
dated on or before the Fifth Amendment Effective Date and in form and substance
satisfactory to the Agent and its special counsel, Tucker Arensberg, P.C.:
(A) A duly executed counterpart original of this
Fifth Amendment executed by the Required Lenders, the Agent and the Borrower;
(B) A certificate from the Secretary of the Borrower
certifying that the Articles of Incorporation and Bylaws of the Borrower
previously delivered to the Agent are true, complete, and correct.
(C) Payment of the Fifth Amendment Fee to the Agent
for the pro rata benefit of the Lenders who execute this Fifth Amendment on or
by December 10, 1999;
-5-
<PAGE> 6
(D) Such other instruments, documents and opinions of
counsel as the Agent shall reasonably require, all of which shall be
satisfactory in form and content to the Agent and its special counsel, Tucker
Arensberg, P.C.
(ii) The following statements shall be true and correct on the
Fifth Amendment Effective Date and the Agent shall have received a certificate
signed by an Authorized Officer of the Borrower, dated the Fifth Amendment
Effective Date, stating that:
(A) the representations and warranties made pursuant
to Section 2.01 of this Fifth Amendment and in the other Loan Documents, as
amended hereby, are true and correct on and as of the Fifth Amendment Effective
Date as though made on and as of such date;
(B) no petition by or against the Borrower has at any
time been filed under the United States Bankruptcy Code or under any similar
act;
(C) taking into account the amendments set forth in
this Fifth Amendment, no Event of Default or event which with the giving of
notice, the passage of time or both would become an Event of Default has
occurred and is continuing, or would result from the execution of or performance
under this Fifth Amendment;
(D) taking into account the amendments set forth in
this Fifth Amendment, no Material Adverse Change has occurred which has not been
disclosed to the Agent and the Lenders; and
(E) taking into account the amendments set forth in
this Fifth Amendment, the Borrower has in all material respects performed all
agreements, covenants and conditions required to be performed on or prior to the
date hereof under the Original Credit Agreement and the other Loan Documents.
ARTICLE IV
GENERAL PROVISIONS
SECTION 4.01 RATIFICATION OF TERMS. Except as expressly amended by this
Fifth Amendment, the Original Credit Agreement and each and every
representation, warranty, covenant, term and condition contained therein is
specifically ratified and confirmed. The Borrower hereby confirms that any
collateral for the Lender Obligations, including but not limited to
encumbrances, Liens, security interests, mortgages and pledges granted by the
Borrower or third parties, shall continue unimpaired and in full force and
effect. THE BORROWER EXPRESSLY RATIFIES AND CONFIRMS THE WAIVER OF JURY TRIAL
PROVISION CONTAINED IN THE ORIGINAL CREDIT AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
SECTION 4.02 REFERENCES. All notices, communications, agreements,
certificates, documents or other instruments executed and delivered after the
execution and delivery of this Fifth Amendment in connection with the Original
Credit Agreement, any of the other Loan Documents or the transactions
contemplated thereby may refer to the Original Credit Agreement without making
specific reference to this Fifth Amendment, but nevertheless all such references
shall include this Fifth Amendment unless the context requires otherwise. From
and after the Amendment Effective Date, all references in the Original Credit
Agreement and each
-6-
<PAGE> 7
of the other Loan Documents to the "Agreement" shall be deemed to be references
to the Original Credit Agreement as amended hereby.
SECTION 4.03 INCORPORATION INTO ORIGINAL CREDIT AGREEMENT. This Fifth
Amendment is deemed incorporated into the Original Credit Agreement. To the
extent that any term or provision of this Fifth Amendment is or may be deemed
expressly inconsistent with any term or provision of the Original Credit
Agreement, the terms and provisions hereof shall control.
SECTION 4.04 COUNTERPARTS. This Fifth Amendment may be executed in
different counterparts, each of which when executed by the Borrower and the
Agent, the Lenders, and the L/C Issuer shall be regarded as an original, and all
such counterparts shall constitute one Fifth Amendment.
SECTION 4.05 CAPITALIZED TERMS. Except for proper nouns and as
otherwise defined herein, capitalized terms used herein as defined terms shall
have the same meanings herein as are ascribed to them in the Original Credit
Agreement, as amended hereby.
SECTION 4.06 TAXES. The Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection with the
execution, delivery, filing and recording of this Fifth Amendment and such other
documents and instruments as are delivered in connection herewith and agrees to
save the Agent, the Lenders, and the L/C Issuer harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees.
SECTION 4.04 COSTS AND EXPENSES. The Borrower will pay all costs and
expenses of the Agent (including, without limitation, the reasonable fees and
the disbursements of the Agent's special counsel, Tucker Arensberg, P.C.) in
connection with the preparation, execution and delivery of this Fifth Amendment
and the other documents, instruments and certificates delivered in connection
herewith.
SECTION 4.08 GOVERNING LAW. THIS FIFTH AMENDMENT AND THE RIGHTS AND
OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PROVISIONS
THEREOF REGARDING CONFLICTS OF LAW.
SECTION 4.09 HEADINGS. The headings of the sections in this Fifth
Amendment are for purposes of reference only and shall not be deemed to be a
part hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto, with the intent to be legally
bound hereby, have caused this Fifth Amendment to Revolving Credit and Letter of
Credit Issuance Agreement to be duly executed by their respective proper and
duly authorized officers as a document under seal, as of the day and year first
above written.
ATTEST: BORROWER:
THE CARBIDE/GRAPHITE GROUP,
INC., a Delaware corporation
/s/ William M. Thalman By /s/ Stephen D. Weaver (SEAL)
Name: William M. Thalman Name: Stephen D. Weaver
Title: Treasurer Title: VP-Finance and CFO
AGENT AND L/C ISSUER:
PNC BANK, NATIONAL ASSOCIATION
By /s/ Mark W. Rutherford (SEAL)
Name: Mark W. Rutherford
Title: Senior Vice President
LENDERS:
REVOLVING CREDIT PNC BANK, NATIONAL ASSOCIATION
COMMITMENT: $26,000,000.00
RATABLE SHARE: 17.33% By /s/ Mark W. Rutherford (SEAL)
Name: Mark W. Rutherford
Title: Senior Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-8-
<PAGE> 9
REVOLVING CREDIT NATIONAL CITY BANK OF
COMMITMENT: $18,000,000.00 PENNSYLVANIA
RATABLE SHARE: 12% By /s/ William S. Harris (SEAL)
Name: William S. Harris
Title: Vice President
REVOLVING CREDIT THE FIRST NATIONAL BANK OF
COMMITMENT: $13,000,000.00 CHICAGO
RATABLE SHARE: 8.66% By /s/ William J. McCaffrey (SEAL)
Name: William J. McCaffrey
Title: First Vice President
REVOLVING CREDIT FIRST UNION NATIONAL BANK
COMMITMENT: $18,000,000.00
RATABLE SHARE: 12% By______________________(SEAL)
Name:
Title:
REVOLVING CREDIT KEYBANK, NATIONAL ASSOCIATION
COMMITMENT: $13,000,000.00
RATABLE SHARE: 8.66% By /s/ Francis W. Lutz, Jr. (SEAL)
Name: Francis W. Lutz, Jr.
Title: Portfolio Officer
REVOLVING CREDIT STANDARD CHARTERED BANK
COMMITMENT: $13,000,000.00
RATABLE SHARE: 8.66% By /s/ Joseph Langlois (SEAL)
Name: Joseph Langlois
Title: Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-9-
<PAGE> 10
REVOLVING CREDIT MELLON BANK, N.A.
COMMITMENT: $13,000,000.00
RATABLE SHARE: 8.66% By /s/ Robert J. Reichenbach (SEAL)
Name: Robert J. Reichenbach
Title: Assistant Vice President
REVOLVING CREDIT BANK OF AMERICA, N.A.
COMMITMENT: $18,000,000.00
RATABLE SHARE: 12%
By__________________________(SEAL)
Name:
Title:
REVOLVING CREDIT THE CHASE MANHATTAN BANK
COMMITMENT: $18,000,000.00
RATABLE SHARE: 12% By /s/ John Malone (SEAL)
Name: John Malone
Title: Vice President
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR
THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 41,411
<ALLOWANCES> (736)
<INVENTORY> 75,333
<CURRENT-ASSETS> 133,376
<PP&E> 340,966
<DEPRECIATION> (212,453)
<TOTAL-ASSETS> 270,202
<CURRENT-LIABILITIES> 52,862
<BONDS> 113,200
0
0
<COMMON> 99
<OTHER-SE> 82,110
<TOTAL-LIABILITY-AND-EQUITY> 270,202
<SALES> 51,123
<TOTAL-REVENUES> 51,123
<CGS> 44,703
<TOTAL-COSTS> 47,653
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 2,092
<INCOME-PRETAX> 1,348
<INCOME-TAX> 456
<INCOME-CONTINUING> 892
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 892
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
