CARBIDE GRAPHITE GROUP INC /DE/, 10-Q, 2000-06-14

CARBIDE GRAPHITE GROUP INC /DE/
10-Q, 2000-06-14
ELECTRICAL INDUSTRIAL APPARATUS

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<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 APRIL 30, 2000

[ ] 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 June 12, 2000, there were 8,331,342 shares of the
Registrant's $0.01 par value Common Stock outstanding.

<PAGE> 2

THE CARBIDE/GRAPHITE GROUP, INC.
INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
------------- ------------------------------------------------------------------ ---------

PART I

1 Index to Financial Statements ................................... 2

2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 15

3 Quantitative and Qualitative Disclosure
About Market Risk .......................................... 22

PART II

1 Legal Proceedings ............................................... 23

2 Changes in Securities ........................................... *

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 ....................... 26

Signatures ...................................................... 27
</TABLE>

-------------

* 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

<TABLE>
<CAPTION>
PAGE

<S> <C>
Condensed Consolidated Balance Sheets
as of April 30, 2000 and July 31, 1999 .......................................... 3

Unaudited Consolidated Statements of Operations
for the Quarters and Nine Months Ended April 30, 2000 and 1999 .................. 4

Unaudited Consolidated Statement of Stockholders' Equity
for the Nine Months Ended April 30, 2000 ........................................ 5

Unaudited Consolidated Statements of Cash Flows
for the Quarters and Nine Months Ended April 30, 2000 and 1999 .................. 6

Footnotes to Unaudited Condensed Consolidated Financial Statements ................... 7
</TABLE>

2
<PAGE> 4

THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
as of April 30, 2000 and July 31, 1999
(in thousands, except share information)

<TABLE>
<CAPTION>
April 30, July 31,
2000 1999 *
---- ------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable -- trade, net of allowance for doubtful
accounts: $872 at April 30 and $819 at July 31 ............ $ 37,354 $ 37,997
Inventories (Note 2) ........................................... 62,877 73,621
Income taxes receivable ........................................ 4,175 6,592
Deferred income taxes .......................................... 7,404 12,093
Other current assets ........................................... 8,289 5,989
--------- ---------
Total current assets ....................................... 120,099 136,292
Property, plant and equipment, net ................................. 122,703 130,342
Other assets ....................................................... 8,884 7,782
--------- ---------
Total assets ........................................... $ 251,686 $ 274,416
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses:
Overdrafts ................................................... $ 1,943 $ 4,079
Accounts payable, trade ...................................... 17,996 16,937
Antitrust claims reserve (Note 4) ............................ 6,088 21,404
Other current liabilities .................................... 16,908 18,268
--------- ---------
Total current liabilities .................................. 42,935 60,688
Long-term debt (Note 5) ............................................ 112,250 110,500
Deferred income taxes and other liabilities ........................ 22,732 21,911
--------- ---------
Total liabilities ........................................ 177,917 193,099
--------- ---------

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: 9,955,542 at April 30 and 9,937,042 at July 31;
shares outstanding: 8,331,342 at April 30 and
8,337,842 at July 31 ......................................... 99 99
Additional paid-in capital ..................................... 36,685 36,616
Retained earnings .............................................. 48,171 55,595
Other stockholders' equity items ............................... (11,186) (10,993)
--------- ---------
Total stockholders' equity .............................. 73,769 81,317
--------- ---------
Total liabilities and stockholders' equity ............. $ 251,686 $ 274,416
========= =========
</TABLE>

----------
* Condensed 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 and nine months ended
April 30, 2000 and 1999
(in thousands, except share and per share data)

<TABLE>
<CAPTION>
Quarter Ended April 30, Nine Months Ended April 30,
----------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)

<S> <C> <C> <C> <C>
Net sales ........................................ $51,238 $58,307 $155,995 $185,824
Operating costs and expenses:
Cost of goods sold (Note 2) .................. 49,826 49,566 149,471 158,367
Selling, general and administrative .......... 2,548 4,201 8,771 11,183
Early retirement/severance charge (Note 6) ... 2,050 - 2,050 -
Other expense (Note 6) ....................... - - - 8,043
--------- --------- --------- ---------
Operating income (loss) .................. (3,186) 4,540 (4,297) 8,231
Other costs and expenses:
Interest expense, net ........................ 2,599 1,749 7,150 4,682
--------- --------- --------- ---------
Income (loss) before income taxes ........ (5,785) 2,791 (11,447) 3,549
Provision for (benefit from) taxes (Note 3) ..... (2,025) 977 (4,023) 1,242
--------- --------- --------- ---------
Net income (loss) ....................... ($3,760) $1,814 ($7,424) $2,307
========= ========= ========= =========

Earnings per share information (Note 1):

Weighted average common shares
outstanding .................................... 8,331,342 8,347,842 8,327,898 8,410,086
--------- --------- --------- ---------

Weighted average common and common
equivalent shares outstanding .................. - 8,370,308 - 8,436,486
--------- --------- --------- ---------

Net income (loss):

Basic ....................................... ($0.45) $0.22 ($0.89) $0.27
========= ========= ========= =========

Diluted ..................................... ($0.45) $0.22 ($0.89) $0.27
========= ========= ========= =========
</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 nine months ended April 30, 2000
(in thousands, except share amounts)

Common Stock Additional Other
Comprehensive ------------------- Paid-In Retained Stockholders'
Loss 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 loss .......................... ($7,424) (7,424)
=======
Exercise of stock options ......... 18,500 69 (18)
Purchase of treasury stock ......... (175)
--------- --- ------- ------- ---------

Balance at April 30,
2000 (Unaudited) ................ 9,955,542 $99 $36,685 $48,171 ($11,186)
========= === ======= ======= =========
</TABLE>

* Condensed 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 and nine months ended April 30, 2000 and 1999
(in thousands)

<TABLE>
<CAPTION>
Quarter Ended April 30, Nine Months Ended April 30,
----------------------- ---------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)

<S> <C> <C> <C> <C>
Net income (loss) ........................................ ($3,760) $1,814 ($7,424) $2,307
Adjustments for non-cash transactions:
Depreciation and amortization .......................... 4,652 4,550 14,487 13,130
Amortization of debt issuance costs .................... 72 37 191 109
Amortization of intangible assets ...................... 12 20 41 63
Changes in deferred taxes .............................. 651 - 4,689 (1,843)
Loss on the impairment of assets ....................... - - - 5,742
Increase (decrease) in cash from changes in:
Accounts receivable .................................... 1,627 2,778 447 6,189
Inventories ............................................ 222 1,423 10,744 (1,800)
Income taxes ........................................... - 3,317 2,417 3,760
Other current assets ................................... (4,003) (652) (2,297) 87
Accounts payable and accrued expenses .................. 4,961 3,773 (15,617) (7,072)
Other non-current assets and liabilities, net ........... 107 (117) (317) 482
------- ------- ------- -------
Net cash provided by operations .................... 4,541 16,943 7,361 21,154
------- ------- ------- -------

Investing activities:
Capital expenditures ................................... (1,838) (3,988) (6,848) (9,959)
------- ------- ------- -------
Net cash used for investing activities ............. (1,838) (3,988) (6,848) (9,959)
------- ------- ------- -------

Financing activities:
Proceeds from revolving credit facility ................ 22,000 15,950 70,250 49,720
Repayment on revolving credit facility ................. (20,750) (21,900) (68,500) (52,870)
Overdrafts and other ................................... (3,953) (5,574) (2,263) (6,614)
------- ------- ------- -------
Net cash used for financing activities .......... (2,703) (11,524) (513) (9,764)
------- ------- ------- -------

Net change in cash and cash equivalents .................. - 1,431 - 1,431
Cash and cash equivalents, beginning of period ........... - - - -
------- ------- ------- -------
Cash and cash equivalents, end of period ................. - $1,431 - $1,431
======= ======= ======= =======
</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 loss for the nine months ended
April 30, 2000 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 tables provide a reconciliation of the income and share
amounts for the basic and diluted earnings per share computations for the
quarters and nine months ended April 30, 2000 and 1999 (dollar amounts in
thousands):

<TABLE>
<CAPTION>
For the quarters ended April 30,
----------------------------------------------------------------------------------
2000 1999
------------------------------------- ----------------------------------
Weighted Per Weighted Per
Income Average Share Income Average Share
(Loss) Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------

<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share....... ($3,760) 8,331,342 ($0.45) $1,814 8,347,842 $0.22
====== =====
Effect of dilutive securities:
Options for common stock..... - - - 22,466
------- --------- ------ ---------
Diluted earnings per share .... ($3,760) 8,331,342 ($0.45) $1,814 8,370,308 $0.22
======= ========= ===== ====== ========= =====
</TABLE>

7
<PAGE> 9

THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--CONTINUED

<TABLE>
<CAPTION>
For the nine months ended April 30,
----------------------------------------------------------------------------------
2000 1999
------------------------------------- ----------------------------------
Weighted Per Weighted Per
Income Average Share Income Average Share
(Loss) Shares Amount (Loss) Shares Amount
------ ------ ------ ------ ------ ------

<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share....... ($7,424) 8,327,898 ($0.89) $2,307 8,410,086 $0.27
====== =====
Effect of dilutive securities:
Options for common stock..... - - - 26,400
------- --------- ------ ---------
Diluted earnings per share .... ($7,424) 8,327,898 ($0.89) $2,307 8,436,486 $0.27
======= ========= ======= ====== ========= =====
</TABLE>

The weighted-average number of options for common stock outstanding for
the quarter and nine months ended April 30, 2000 was 874,400 and 750,733,
respectively, versus 432,500 and 436,500 for the quarter and nine months ended
April 30, 1999, respectively. Options assumed to be outstanding for purposes of
the dilutive earnings per share computations were reduced utilizing the treasury
stock method. Since the Company's results were a net loss for the quarter and
nine months ended April 30, 2000, common equivalent shares were excluded from
the diluted earnings per share computation for those periods as their effect
would have been anti-dilutive.

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 derivative
financial instruments and related hedging activities. The Company is finalizing
its evaluation of the financial accounting and reporting impact of SFAS #133.

The Company is required to adopt Staff Accounting Bulletin #101,
"Revenue Recognition in Financial Statements" (SAB #101) for all of the quarters
in its fiscal year ending July 31, 2001. SAB #101 clarifies accounting rules for
revenue recognition in financial statements. The Company does not expect the
adoption of SAB #101 to have a material impact on its consolidated financial
statements.

8
<PAGE> 10

THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--CONTINUED

2. INVENTORIES:

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
January 31, July 31,
2000 1999
----------- --------

<S> <C> <C>
Finished goods ............................. $16,143 $22,386
Work in process ............................ 32,422 43,723
Raw materials .............................. 17,517 13,429
------- -------
66,082 79,538
LIFO reserve ............................... (14,122) (16,487)
------- -------
51,960 63,051
Supplies ................................... 10,917 10,570
------- -------
$62,877 $73,621
======= =======
</TABLE>

The decline in inventory values from July 31, 1999 to April 30, 2000
was primarily due to the Company's working capital improvement program. The
Company has temporarily reduced graphite electrode and needle coke production to
lower inventory levels. The Company estimates that its cost of goods sold for
the quarter and nine months ended April 30, 2000 includes approximately $3
million and $10 million, respectively, in fixed costs that would have been
capitalized into inventory had the Company been operating at normal production
levels during the applicable periods.

3. INCOME TAXES:

The provision for income taxes for the quarters and nine months ended
April 30, 2000 and 1999 are summarized by the following effective tax rate
reconciliations:

<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
April 30, April 30,
------------------- ------------------
2000 1999 2000 1999
---- ---- ---- ----

<S> <C> <C> <C> <C>
Federal statutory tax rate ............. (35.0)% 35.0 % (35.0)% 35.0 %
Effect of:
State taxes, net of federal benefit 1.4 1.4 1.4 1.4
Foreign sales corporation benefit . (1.6) (1.6) (1.6) (1.6)
Other ............................. 0.2 0.2 0.1 0.2
---- ---- ---- ----
Effective tax rate .............. (35.0)% 35.0 % (35.1)% 35.0 %
==== ==== ==== ====
</TABLE>

The income tax benefits for the quarter and nine months ended April 30,
2000 were recorded based on the Company's projected effective income tax rate
for the fiscal year ending July 31, 2000.

9
<PAGE> 11

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 was 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 was
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, 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 and a third amended complaint.

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 been approved by the Court. 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.

10
<PAGE> 12

THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--CONTINUED

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 also understands that the DOJ
has indicted Mitsubishi Corporation and Georges Schwegler, a former UCAR
employee.

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. On January 24, 2000, the European Commission adopted a Statement of
Objections against the Company, SGL, UCAR, VAW Aluminum AG, Showa Denko KK,
Tokai Carbon Co. Ltd., Nippon Carbon Co. Ltd. and SEC Corporation. The Company
has prepared and submitted to the European Commission a response to the
Statement of Objections and has appeared at a hearing regarding the imposition
of fines. 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 million charge ($4.5 million after
expected tax benefits) for such potential liabilities (the Supplemental
Antitrust Charge). The combined $45 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, including an adverse final
determination as to the right of

11
<PAGE> 13

THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--CONTINUED

foreign purchasers to relief under U.S. antitrust laws, 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 April 30, 2000, $38.9 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 April 30, 2000. As of April 30, 2000, 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). During the
quarter ended January 31, 2000, the 1997 Revolving Credit Facility was amended
which resulted in a $10 million reduction in the facility commitment to $140
million as of January 31, 2000. The amendment was obtained primarily to allow
the Company to complete its working capital improvement program. 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
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. The 1997 Revolving
Credit Facility agreement excludes the Antitrust Charge from EBITDA for both
pricing and covenant calculation purposes. The 1997 Revolving Credit Facility is
collateralized with receivables, inventory and all of the Company's property,
plant and equipment. Repayment of funds borrowed under the credit agreement is
not required until the expiration of the facility in December 2003. As of April
30, 2000, the Company had $21.5 million available under the 1997 Revolving
Credit Facility. As of April 30, 2000, borrowings totaled $112.2 million and
outstanding letters of credit were $6.3 million.

In May 2000, the Company and the banks under the 1997 Revolving Credit
Facility reached an agreement on an amendment and waiver with respect to the
Company's non-compliance with the above financial covenants for the reporting
period ended April 30, 2000. The 1997 Revolving Credit Facility was amended to
reduce the facility commitment to $135 million effective June 30, 2000. Also,
the amendment and waiver requires the Company to maintain a minimum Consolidated
Tangible Net Worth of $70 million until October 31, 2000, at which time the
minimum Consolidated Tangible Net Worth requirement shall be governed by the
terms within 1997 Revolving Credit Facility unaffected by the terms of the
amendment and waiver. The Company has also agreed to deliver to the banks its
compliance certificate for the reporting period ending July 31, 2000 on or
before August 21, 2000. As a result of the amendment and waiver, interest costs
are calculated based on a floating LIBOR rate plus 3.00% until the Interest
Coverage Ratio increases above 3.5 to 1.0 and the Consolidated Total
Indebtedness to EBITDA Ratio decreases below 3.75 to 1.0. As of April 30, 2000,
the interest rate on borrowings outstanding under the 1997 Revolving Credit
Facility was 9.1%.

12
<PAGE> 14
THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES
FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS--CONTINUED

6. OTHER ITEMS:

EARLY RETIREMENT/SEVERANCE CHARGE

During the quarter ended April 30, 2000, the Company recorded
a $2.0 million charge to provide for severance payments and benefits associated
with the elimination of approximately 35 salaried positions. Substantially all
of such payments are expected to be paid by April 30, 2001.

OTHER EXPENSE

During fiscal 1999, the Company closed certain baking and graphitizing
operations at its St. Marys, Pennsylvania plant. Other expense in the nine
months ended April 30, 1999 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.

SHARE REPURCHASE PROGRAM

During the nine months ended April 30, 2000, the Company repurchased
25,000 shares of Common Stock under its share repurchase program at a total cost
of $0.2 million. The Company has repurchased 492,200 shares of Common Stock at a
total cost of $5.9 million under its share repurchase program.

13
<PAGE> 15

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 April 30,
2000 and July 31, 1999 and for the quarters and nine months ended April 30, 2000
and 1999 follows (amounts in thousands):

<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
April 30, April 30,
--------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales to customers:
Graphite electrode products ................ $37,480 $44,222 $119,069 $142,320
Calcium carbide products ................... 13,758 14,085 36,926 43,504
------- ------- -------- --------
Total net sales to customers ........... 51,238 58,307 155,995 185,824
------- ------- -------- --------
Intercompany sales, at market prices:
Graphite electrode products ................ 21 24 71 119
Eliminations ............................... (21) (24) (71) (119)
------- ------- -------- --------
Total net sales ........................ $51,238 $58,307 $155,995 $185,824
======= ======= ======== ========

Operating income (loss):
Graphite electrode products (a) ............ ($1,092) $5,666 ($794) $18,274
Calcium carbide products (a)................ 904 1,113 1,968 3,489
Unallocated corporate ...................... (2,998) (2,239) (5,471) (13,532)
------- ------- -------- --------
Operating income (loss) ................ ($3,186) $4,540 ($4,297) $8,231
======= ======= ======== ========

Depreciation and amortization:
Graphite electrode products ................ $4,238 $4,146 $13,201 $11,880
Calcium carbide products ................... 397 378 1,212 1,170
Unallocated corporate ...................... 30 47 115 142
------- ------- -------- --------
Depreciation and amortization .......... $4,665 $4,571 $14,528 $13,192
======= ======= ======== ========

EBITDA: (b)
Graphite electrode products ................ $3,146 $9,812 $12,407 $30,154
Calcium carbide products ................... 1,301 1,491 3,180 4,659
Unallocated corporate ...................... (918) (2,192) (3,306) (5,347)
------- ------- -------- --------
EBITDA ................................. $3,529 $9,111 $12,281 $29,466
======= ======= ======== ========

April 30, July 31,
2000 1999
---- ----
Total assets:
Graphite electrode products ................ $207,691 $224,773
Calcium carbide products ................... 25,709 27,888
Unallocated corporate ...................... 18,286 21,755
------- -------
Total assets ........................... $251,686 $274,416
======== ========
</TABLE>

----------------

(a) Excludes early retirement/severance charge in the quarter and nine months
ended April 30, 2000 and other expense in the nine months ended April 30,
1999 which is in "unallocated corporate expenses" (See Note 6).
(b) EBITDA is defined as operating income (loss) before depreciation and
amortization, early retirement/severance charges and other expenses. EBITDA
is not presented as a measure of operating results under generally accepted
accounting principles. EBITDA is an important measure in assessing the
performance of the Company's business segments.

14
<PAGE> 16

PART I
Item 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

RESULTS OF OPERATIONS

The following table sets forth certain financial information for the
quarters and nine months ended April 30, 2000 and 1999 and should be read in
conjunction with the unaudited condensed consolidated financial statements,
including the notes thereto, appearing elsewhere in this Quarterly Report on
Form 10-Q:

<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
April 30, April 30,
---------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Graphite electrode products .............. $37,480 $44,222 $119,069 $142,320
Calcium carbide products ................. 13,758 14,085 36,926 43,504
------- ------- -------- --------
Total net sales .................... $51,238 $58,307 $155,995 $185,824
======= ======= ======== ========

Percentage of net sales:
Graphite electrode products .............. 73.1% 75.8% 76.3% 76.6%
Calcium carbide products ................. 26.9 24.2 23.7 23.4
------- ------- -------- --------
Total net sales .................... 100.0% 100.0% 100.0% 100.0%
======= ======= ======== ========

Gross profit as a percentage of segment net sales:
Graphite electrode products .............. 0.0% 16.0% 2.5% 15.8%
Calcium carbide products ................. 10.1 11.7 9.5 11.5

Percentage of total net sales:
Total gross profit margin ................ 2.8% 15.0% 4.2% 14.8%
Selling, general and administrative ...... 5.0 7.2 5.6 6.0
Operating income (loss) .................. (6.2) 7.8 (2.8) 4.4
Net income (loss) ......................... (7.3) 3.1 (4.8) 1.2
</TABLE>

----------

Net sales for the quarter ended April 30, 2000 were $51.2 million
versus $58.3 million in the prior year comparable quarter. Graphite electrode
product sales for the quarter were $37.5 million versus $44.2 million in the
prior year comparable quarter. Calcium carbide product sales were $13.8 million
versus $14.1 million in the prior year comparable quarter. Net sales for the
nine months ended April 30, 2000 were $156.0 million versus $185.8 million in
the prior year comparable period. Graphite electrode product sales were $119.1
million versus to $142.3 million in last year's comparable period, while calcium
carbide product sales were $36.9 million compared to $43.5 million last year.

Within the graphite electrode products segment, graphite electrode net
sales were $27.3 million, a 14.6% decrease from last year's comparable quarter
resulting from a 7.1% decline in electrode shipments and an 8.1% decrease in
average graphite electrode prices. Graphite electrode shipments totaled 24.0
million pounds versus 25.8 million pounds in last year's comparable quarter.
Domestic and foreign electrode shipments as a percentage

15
<PAGE> 17

of total electrode shipments for the quarter ended April 30, 2000 were 57.4% and
42.6%, respectively, versus 60.0% and 40.0%, respectively, in last year's
comparable quarter. Weakness in certain regions of the global economy, coupled
with the continuing strength of the U.S. dollar versus the Euro, continued to
have a negative impact on graphite electrode transactional prices during the
quarter. Domestic graphite electrode prices decreased 5.4% in the current
quarter as compared to last year's third 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 net prices deceased 10.5%
in the current quarter versus last year's third quarter due to the stronger U.S.
dollar against the Euro and weaker transactional prices. 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. However, the continuing strength of the U.S. dollar
against the Euro is expected to continue to negatively impact foreign graphite
electrode net prices for the foreseeable future. Needle coke sales were $4.7
million versus $6.9 million a year ago, with the decrease resulting from a 21.5%
decrease in needle coke shipments and a 13.2% 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 and increased price
competition in this market. The Company expects average needle coke prices to
remain at these lower levels through at least the end of its fiscal year ending
July 31, 2000 due to aggressive price competition in the needle coke market.
Graphite specialty product sales during the quarter ended April 30, 2000 were
$5.5 million versus $5.4 million in the prior year comparable quarter.

For the nine months ended April 30, 2000, graphite electrode sales were
$89.7 million, a 10.4% decrease from the prior year comparable period resulting
from an 11.0% decline in average graphite electrode net prices. Shipments of
graphite electrodes for the nine months ended April 30, 2000 increased slightly
to 79.3 million pounds versus 78.8 million pounds in last year's comparable
period. Domestic and foreign electrode shipments as a percentage of total
electrode shipments for the nine months ended April 30, 2000 were 55.8% and
44.2%, respectively, versus 55.9% and 44.1%, respectively, in the prior year
comparable period. The domestic electrode price was down 8.1% while the average
foreign electrode price was down 15.4%. Needle coke sales for the nine months
ended April 30, 2000 were $14.4 million versus $25.5 million in the prior year
comparable period. The decline in needle coke sales was due to a 34.5% decline
in needle coke shipments, coupled with a 13.6% decrease in average needle coke
prices. Graphite specialty product sales for the nine months ended April 30,
2000 were $14.9 million versus $16.7 million in the prior year comparable
period, with the decline resulting from lower shipments of bulk and granular
graphite.

Within the calcium carbide products segment, acetylene sales (which
includes pipeline acetylene and calcium carbide for fuel gas applications) were
$7.1 million for the quarter ended April 30, 2000, essentially unchanged versus
last year's comparable quarter. ISP, the Company's largest pipeline acetylene
customer, had 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 first half of fiscal 2000. However, acetylene sales during
the quarter ended April 30, 2000 improved over the previous quarter ended
January 31, 2000 on improved shipments to both pipeline and fuel gas customers.
Sales of calcium carbide for metallurgical applications were $4.8 million which
was 9.7% lower than last year's comparable quarter due to lower shipments and
prices. Weakness in the domestic steel market as well as substitute products has
had a negative impact on demand for calcium carbide for metallurgical
applications. However, shipments of calcium carbide for metallurgical
applications improved over the previous quarter ended January 31, 2000 and the
Company has experienced price increases in certain metallurgical products.

For the nine months ended April 30, 2000, acetylene sales were $18.2
million, a 24.7% decrease from the prior year comparable period resulting from
lower shipments. Sales of calcium carbide for metallurgical applications were
$13.9 million, a 9.6% decrease from a year ago resulting primarily from lower
shipments.

The gross profit margin on graphite electrode product sales for the
quarter ended April 30, 2000 was breakeven versus 16.0% in the prior year
comparable quarter. The gross profit margin on graphite electrode product sales
for the nine months ended April 30, 2000 was 2.5% versus 15.8% in the prior year
comparable

16
<PAGE> 18

period. The effects of the Company's working capital improvement program
negatively impacted the gross profit margin in both periods. The Company
temporarily reduced graphite electrode and needle coke production to lower
inventory levels. The Company estimates that its cost of goods sold for the
quarter and nine months ended April 30, 2000 includes approximately $3 million
and $10 million, respectively, in fixed costs that would have been capitalized
into inventory had the Company been operating at normal production levels. Lower
average prices for graphite electrodes and needle coke as well as lower
shipments of needle coke also contributed to the lower gross profit margins. In
addition, depreciation and amortization charges were approximately $1.3 million
higher during the nine months ended April 30, 2000. Also, the cost of decant
oil, the primary raw material in the production of needle coke, has increased
87.5% and 50.2%, respectively, during the quarter and nine months ended April
30, 2000 versus last year's comparable periods. The continuing rise in world
petroleum prices is expected to have a negative effect on graphite electrode
product gross profit margins for the foreseeable future.

Gross profit as a percentage of calcium carbide product sales for the
quarter ended April 30, 2000 was 10.1% versus 11.7% in the prior year comparable
quarter. Gross profit as a percentage of calcium carbide product sales for the
nine months ended April 30, 2000 was 9.5% versus 11.5% in the prior year
comparable period. The decrease in the gross margin in both periods was due
primarily to lower sales in the carbide business.

Selling, general and administrative expenditures for the quarter ended
April 30, 2000 were $2.5 million versus $4.2 million in the comparable quarter a
year ago. Selling, general and administrative expenditures for the nine months
ended April 30, 2000 were $8.8 million versus $11.2 million in the comparable
period a year ago. The decrease in expenditures for both periods was due
primarily to lower departmental operating costs achieved as a result of the
Company's cost saving program in fiscal 1999, coupled with lower
employee-related benefit costs during the current periods.

During the quarter ended April 30, 2000, the Company recorded a $2.0
million charge to provide for severance payments and benefits associated with
the elimination of approximately 35 salaried positions. Substantially all of
such payments are expected to be paid through April 30, 2001.

During fiscal 1999, 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 nine months ended April 30, 1999 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.

Net interest expense for the quarter ended April 30, 2000 was $2.6
million, including $2.5 million of interest expense associated with the
Company's revolving credit facility and $0.1 million in bank fees. Net interest
expense for the quarter ended April 30, 1999 was $1.7 million, including $1.8
million of interest expense associated with the Company's revolving credit
facility and $0.1 million in bank fees, less $0.2 million in capitalized
interest. Net interest expense for the nine months ended April 30, 2000 was $7.1
million, including $6.8 million of interest expense associated with the
Company's revolving credit facility and $0.3 million in bank fees. Net interest
expense for the nine months ended April 30, 1999 was $4.7 million, including
$5.6 million of interest expense associated with the Company's revolving credit
facility and $0.2 million in bank fees, less $1.1 million in capitalized
interest.

The income tax benefit for the quarter and nine months ended April 30,
2000 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
from the federal statutory rate due primarily to state taxes, offset by benefits
derived from the Company's foreign sales corporation.

17
<PAGE> 19

The Company has implemented a working capital improvement program that
is expected to be in effect for the remainder of fiscal 2000. While this program
is expected to have a positive effect on operating cash flows, the program is
expected to significantly contribute to the Company reporting a net loss from
operations 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

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 $13 million in capital improvements
during its fiscal year ending July 31, 2000. Such spending includes
approximately $5 million for a hydrodesulfurization (HDS) complex in connection
with the expected implementation of an HDS project at the Company's needle coke
affiliate, Seadrift Coke, L.P (Seadrift). The HDS project in total is expected
to cost approximately $30 million. The implementation of the HDS project is
contingent upon securing adequate financing to fund the remaining $25 million
cost of the project. In addition, the Company currently estimates that it will
fund approximately $20 million in antitrust payments during fiscal 2000.
Antitrust settlement and expense payments have totaled $15.3 million during the
nine months ended April 30, 2000. The increase in prices of oil (a major raw
material for Seadrift) has resulted in an increased working capital requirement
for this raw material.

The Company has implemented a working capital improvement program that
is expected to be in effect for the remainder of fiscal 2000. In connection with
this program, the Company 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 has had and
is expected to continue 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 and fixed cost absorption typical of higher levels of
production. This situation is expected to significantly contribute to the
Company reporting a net loss from operations for the fiscal year ending July 31,
2000.

18
<PAGE> 20

capital improvement program. 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 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. The 1997 Revolving Credit Facility agreement
excludes the Antitrust Charge from EBITDA for both pricing and covenant
calculation purposes. The 1997 Revolving Credit Facility is collateralized with
receivables, inventory and all of the Company's property, plant and equipment.
Repayment of funds borrowed under the credit agreement is not required until the
expiration of the facility in December 2003. As of April 30, 2000, the Company
had $21.5 million available under the 1997 Revolving Credit Facility. As of
April 30, 2000, borrowings totaled $112.2 million and outstanding letters of
credit were $6.3 million.

The Company's operating results and expected cash flows from operations
could be negatively impacted if weak demand for the Company's products
continues, if the U.S. dollar continues its strong position versus the Euro or
if increased oil costs continue for an extended period of time without increased
product pricing. The negative impact of the operating factors noted above may
continue to impact the Company's compliance with the financial covenants in the
1997 Revolving Credit Facility in the future. If the Company is not in
compliance with such covenants in the future, the Company would have to obtain
additional covenant violation waivers and amendments from its lenders, refinance
the 1997 Revolving Credit Facility and/or obtain additional sources of
financing. The Company is currently exploring alternative and additional sources
of financing to fund the completion of the HDS project, as well as refinance the
1997 Revolving Credit Facility and fund on-going capital expenditures and
working capital needs. Terms and conditions of any settlements of pending
antitrust claims may also adversely impact the Company's expected liquidity
needs in the future. In the event that the Company's capital resources are not
sufficient to fund the Company's planned capital expenditures, service its
indebtedness, fund its working capital needs 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 the 1997 Revolving Credit Facility, obtain additional funding or
further delay discretionary capital projects. If the Company were required to
refinance or renegotiate the 1997 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.

On March 4, 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. During the nine months ended April 30, 2000, the Company repurchased
25,000 shares of Common Stock under its share repurchase program at a total cost
of $0.2 million. In total, the Company has

19
<PAGE> 21

repurchased 492,200 shares of Common Stock at a total cost of $5.9 million under
its share repurchase program. The 1997 Revolving Credit Facility, as amended,
currently prohibits share repurchases.

CASH FLOW INFORMATION

Cash flow provided by operations for the quarter ended April 30, 2000
was $4.5 million. Cash inflows from net loss plus non-cash items of $1.0 million
were increased by a $3.5 million increase in cash flow from changes in certain
working capital items. The Company's working capital improvement program
resulted in $0.2 million in cash flow from inventory reductions, $1.6 million
from accounts receivable and a $5.0 million net cash inflow from trade accounts
payable and accrued expenses. Antitrust settlement and expense payments during
the quarter were $3.3 million and interest payments were $2.5 million. Cash flow
provided by operations for the nine months ended April 30, 2000 was $7.4
million. Cash inflows from net loss plus non-cash items were $7.3 million. The
working capital improvement program resulted in a $10.7 million net cash inflow
from inventory reductions and $0.5 million from accounts receivable. The Company
also received $8.4 million in income tax refunds during the nine months ended
April 30, 2000. Offsetting these working capital cash inflows were $15.3 million
in antitrust settlement and expense payments and $6.0 million in interest
payments.

Investing activities for the quarter and nine months ended April 30,
2000 included $1.8 million and $6.8 million, respectively, in capital
expenditures. The Company believes that most of its future investing activity
cash flow requirements will be for capital expenditures.

Cash flow used for financing activities for the quarter and nine months
ended April 30, 2000 were $2.7 million and $0.5 million, respectively, and each
included an increase in cash flow from borrowings under the 1997 Revolving
Credit Facility, offset by a reduction in overdrafts.

OTHER ITEMS

CALCIUM CARBIDE JOINT VENTURE

On March 7, 2000, the Company announced that it would form a North
American 50/50 joint venture with non ferrum Metallpulver Gesellschaft m.b.H. &
Co.KG. ("non ferrum"), based in St. Georgen, Austria, and with "non ferrum" had
executed letters of intent to purchase certain assets of Rossborough
Manufacturing Co., L.P. (Rossborough) and Reactive Metals & Alloys Corporation
(Remacor). On May 4, 2000, the Company announced that it would not pursue the
purchase of Remacor. In connection with the formation of the joint venture, the
Company will contribute its calcium carbide business net assets and debt to the
joint venture while "non ferrum" will invest cash and will now contribute
certain European magnesium businesses, increasing the international scope of the
joint venture. In addition, Rossborough's management team is expected to take a
more direct role in the new joint venture. The transaction, which is expected to
be completed during the Company's fiscal fourth quarter ending July 31, 2000, is
subject to the negotiation and execution of definitive agreements, the receipt
of appropriate governmental approvals, final corporate approvals and the
arranging of necessary financing.

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

20
<PAGE> 22

is approximately $4.0 million installed, plus $0.5 million per year in ongoing
cash operating costs. The facility improvements are expected to be made during
the Company's fiscal year ending July 31, 2001. 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. The Company expects that the fine to be levied in connection with this
issue will be immaterial.

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 included 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. 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

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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 April 30, 2000 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.

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<PAGE> 24

PART II
Item 1

LEGAL PROCEEDINGS

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 alleged 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, eight 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 was 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 was transferred to the Eastern District of Pennsylvania for
pre-trial proceedings. Another action was filed in the United States District
Court for the Middle District of Pennsylvania on April 19, 2000; the Company is
seeking the transfer of this case 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,
SEC Corporation, Nippon Carbon Co., Ltd., VAW Aluminum AG, 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 amended complaints
adding two additional related plaintiffs and additional defendants Nippon Carbon
Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon U.S.A.,
Inc., VAW Aluminum Aktiengesellscheft and VAW Carbon GMBH.

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<PAGE> 25

nations" provisions). In addition to the settlements discussed above, the
Company may also settle with various additional purchasers.

The Company understands that defendants UCAR, Showa Denko, SGL Corp.
and SGL 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 Carbon Co.
Ltd., SEC Corporation and Nippon Carbon Co. Ltd. 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 also understands that the DOJ has
indicted Mitsubishi Corporation and Georges Schwegler, a former UCAR employee.

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 million charge ($4.5 million after
expected tax benefits) for such potential liabilities (the Supplemental
Antitrust Charge). The combined $45 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 UCAR, Showa Denko, SGL Corp. and SGL 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 possible developments including: (a) 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) additional lawsuits by

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<PAGE> 26

foreign purchasers, (d) the failure to satisfy the conditions to the class
action settlement, and (e) adverse rulings or judgments in pending litigation,
including an adverse final determination as to the right of foreign purchasers
to relief under U.S. antitrust laws, 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 April 30, 2000,
$38.9 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
judgment 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 April 30, 2000. As of April 30, 2000, a $0.2
million reserve has been recorded to provide for estimated exposure on claims
for which a loss is deemed probable.

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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 (incorporated herein by
reference to Exhibit 10.32 to the Company's quarterly report on Form
10-Q for the period ended October 31, 1999)

10.33 Letter Amendment and Waiver 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 May 22, 2000

B. REPORTS ON FORM 8-K

None.

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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 June 14, 2000.

SIGNATURE TITLE
--------- -----

/S/ WALTER B. FOWLER CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE
-------------------------------- OFFICER)
(WALTER B. FOWLER)

/S/ WILLIAM M. THALMAN VICE PRESIDENT - TREASURER
------------------------------- (PRINCIPAL FINANCIAL OFFICER)
(WILLIAM M. THALMAN)

/S/ JEFFREY T. JONES VICE PRESIDENT - CONTROLLER
------------------------------- (PRINCIPAL ACCOUNTING OFFICER)
(JEFFREY T. JONES)

/S/ STEPHEN D. WEAVER SENIOR VICE PRESIDENT AND GENERAL MANAGER,
------------------------------- ELECTRODES AND GRAPHITE SPECIALTY PRODUCTS
(STEPHEN D. WEAVER)

/S/ ARARAT HACETOGLU VICE PRESIDENT AND GENERAL MANAGER,
------------------------------- CALCIUM CARBIDE PRODUCTS
(ARARAT HACETOGLU)

/S/ JIM J. TRIGG VICE PRESIDENT AND GENERAL MANAGER,
------------------------------- SEADRIFT COKE, L.P.
(JIM J. TRIGG)