-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mxxh1FptAziynxOdPbju0eNxVTzqapuueCU+TWBtjy2U7YRJYfAbjJ2Dv5dCHSEM 8+UbO6JJw7n2lr8ZQzGfvA== 0000888918-96-000050.txt : 19961213 0000888918-96-000050.hdr.sgml : 19961213 ACCESSION NUMBER: 0000888918-96-000050 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARBIDE GRAPHITE GROUP INC /DE/ CENTRAL INDEX KEY: 0000888918 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 251575609 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20490 FILM NUMBER: 96679988 BUSINESS ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4125623700 MAIL ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 10-Q 1 QUARTERLY REPORT 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, 1996 [ ] 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 6, 1996, there were 8,460,522 shares of the Registrant's $.01 par value Common Stock outstanding. 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 .............................. 11 PART II 1 Legal......................................... 14 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..... 15 Signatures.................................... 17 * Item not applicable to the Registrant for this filing on Form 10-Q. 1 PART I Item 1 INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DESCRIPTION PAGE - ------------------------------------------------------------------ --------- Condensed Consolidated Balance Sheets as of July 31, 1996 and October 31, 1996 .................... 3 Unaudited Consolidated Statements of Operations for the Quarters Ended October 31, 1996 and 1995 ............ 4 Unaudited Consolidated Statement of Stockholders' Equity for the Quarter Ended October 31, 1996 ...................... 5 Unaudited Consolidated Statements of Cash Flows for the Quarters Ended October 31, 1996 and 1995 .................... 6 Footnotes to Unaudited Condensed Consolidated Financial Statements .......................................... 7 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of October 31, 1996 and July 31, 1996 (in thousands, except share information)
October 31, July 31, 1996 1996 * --------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ............................................. $2,650 $16,586 Short-term investments ............................................... 15,325 10,138 Accounts receivable -- trade, net of allowance for doubtful accounts: $1,926 at October 31 and $1,896 at July 31 ............ 51,026 45,392 Inventories (Note 2) .................................................. 55,715 54,779 Income taxes receivable ............................................... 2,662 4,228 Other current assets .................................................. 10,535 9,811 --------------- --------------- Total current assets .............................................. 137,913 140,934 Property, plant and equipment, net ........................................ 67,778 65,177 Other assets .............................................................. 6,649 6,759 =============== =============== Total assets .................................................. $212,340 $212,870 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accrued expenses: Interest ............................................................ $1,567 $3,920 Other current liabilities ............................................. 29,556 32,189 --------------- --------------- Total current liabilities ......................................... 31,123 36,109 Long-term debt ............................................................ 81,763 81,763 Other liabilities ......................................................... 20,178 20,190 --------------- --------------- Total liabilities ............................................... 133,064 138,062 --------------- --------------- Stockholders' equity: Common stock, $.01 par value; 18,000,000 shares authorized; shares issued: 9,485,522 at October 31 and 9,397,670 at July 31; shares outstanding: 8,365,522 at October 31 and 8,277,670 at July 31 ............................................................. 95 94 Additional paid-in capital, net of $1,398 equity issue costs .......... 31,254 30,153 Retained earnings .................................................... 51,904 48,381 Other stockholders' equity items ..................................... (3,977) (3,820) --------------- --------------- Total stockholders' equity ..................................... 79,276 74,808 =============== =============== Total liabilities and stockholders' equity .................... $212,340 $212,870 =============== ===============
* Summarized from audited fiscal 1996 balance sheet. The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 3 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS for the quarters ended October 31, 1996 and 1995 (in thousands, except share and per share data)
Quarter Ended October 31, ---------------------------------------- 1996 1995 ------------------- ------------------- (Unaudited) Net sales ............................................................. $67,716 $63,876 Operating costs and expenses: Cost of goods sold ................................................ 55,900 53,217 Selling, general and administrative ............................... 4,021 3,169 Other compensation (Note 5) ....................................... 267 525 Other income (Note 5) ............................................. - (303) ------------------ ------------------ Operating income .............................................. 7,528 7,268 Other costs and expenses: Interest expense, net ............................................. 2,105 2,611 Special financing expenses (Note 5)................................. - 603 ------------------ ------------------ Income before income taxes and extraordinary loss ............. 5,423 4,054 Provision for taxes on income from continuing operations (Note 3) ................................. 1,900 1,395 ------------------ ------------------ Income from continuing operations ............................. 3,523 2,659 Extraordinary loss on early extinguishment of debt, net of $552 tax benefit (Note 5) .................................... - (828) ================== ================== Net income ................................................ $3,523 $1,831 ================== ================== Earnings per share information (Note 1): Income from continuing operations ................................. $0.40 $0.33 Extraordinary loss on early extinguishment of debt ................ - (0.11) Net income ................................................ $0.40 $0.22 Common and common equivalent shares ............................... 8,777,181 8,145,878
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 4 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the quarter ended October 31, 1996 (in thousands, except share amounts)
Additional Other Common Stock Paid-In Retained Stockholders' Shares Amount Capital Earnings Equity Items ------------- ----------- ---------------- ------------- -------------------- Balance at July 31, 1996 *...... 9,397,670 $94 $30,153 $48,381 ($3,820) Net income .................... 3,523 Exercise of stock options ..... 87,852 1 1,101 (177) Stock option compensation ................ 20 ------------- ----------- ---------------- ------------- -------------------- Balance at October 31, 1996 (Unaudited) ............ 9,485,522 $95 $31,254 $51,904 ($3,977) ============= =========== ================ ============= ====================
* Summarized from audited fiscal year 1996 statement of stockholders' equity. The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 5 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS for the quarters ended October 31, 1996 and 1995 (in thousands)
Quarter Ended October 31, ---------------------------------- 1996 1995 --------------- --------------- (Unaudited) Net income ............................................................... $3,523 $1,831 Adjustments for noncash transactions: Depreciation and amortization .......................................... 2,502 2,065 Amortization of debt issuance costs .................................... 85 144 Amortization of intangible assets ...................................... 82 82 Deferred revenue ....................................................... (34) (34) Provision for common stock to be issued under options .................. 20 24 Adjustments to deferred taxes .......................................... 71 597 Provision for loss - accounts receivable ............................... 30 30 Extraordinary loss on early extinguishment of debt ..................... - 1,380 Increase (decrease) in cash from changes in: Accounts receivable .................................................... (5,664) 2,428 Inventories ............................................................ (936) (25) Income taxes ........................................................... 1,566 (1,312) Other current assets ................................................... (696) (625) Accounts payable and accrued expenses .................................. (4,311) (6,177) Net change in other non-current assets and liabilities ................. (28) (2,001) --------------- --------------- Net cash used for operations ....................................... (3,790) (1,593) --------------- --------------- Investing activities: Capital expenditures ................................................... (5,181) (3,226) Purchase of short-term investments ..................................... (5,000) (5,353) --------------- --------------- Net cash used for investing activities ............................. (10,181) (8,579) --------------- --------------- Financing activities: Repurchase of Senior Notes, including premium of $1,027 ................ - (12,427) Issuance of Common Stock, net of equity issue costs of $990 ............ - 11,106 Proceeds from exercise of stock options ................................ 35 643 --------------- --------------- Net cash provided by (used for) financing activities ............ 35 (678) --------------- --------------- Net change in cash and cash equivalents .................................. (13,936) (10,850) Cash and cash equivalents, beginning of period ........................... 16,586 42,656 =============== =============== Cash and cash equivalents, end of period ................................. $2,650 $31,806 =============== ===============
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements. 6 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, 1997. 1. Summary of Significant Accounting Policies: Interim Accounting The Company's Annual Report to Stockholders and Form 10-K for the fiscal year ended July 31, 1996 include 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 1996 year-end consolidated balance sheet data contained herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments which are of a normal and recurring nature necessary for a fair statement of the results of operations of these interim periods have been included. Net income for the quarter ended October 31, 1996 is not necessarily indicative of the results to be expected for the full fiscal year. The Management Discussion and Analysis which 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 Primary earnings per share were computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the applicable period. The dilutive effect of common stock equivalents was considered in the primary earnings per share computation utilizing the treasury stock method. Fully diluted earnings per share were not presented as the dilution was not material. Recently Issued Accounting Pronouncements On August 1, 1996, the Company adopted Statement of Financial Accounting Standards #121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS #121). The adoption of SFAS #121 had no impact on the Company's Unaudited Condensed Consolidated Financial Statements. On August 1, 1996, the Company adopted Statement of Financial Accounting Standards #123, "Accounting for Stock-Based Compensation" (SFAS #123). SFAS #123 establishes compensation measurement and recognition alternatives and disclosure requirements for stock-based compensation plans. The Company has elected to continue to use the compensation measurement and recognition principles set forth in Accounting Principles Board Opinion #25, "Accounting for Stock Issued to Employees" to account for its stock-based compensation plans, an alternative available under SFAS #123. The disclosure requirements of SFAS #123 will be adopted during the Company's preparation of its year-end consolidated financial statements for fiscal 1997. 7 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 2. Inventories: Inventories consisted of the following (in thousands): October 31, July 31, 1996 1996 ----------------- ------------------ Finished goods ................... $12,755 $11,986 Work in process .................. 30,635 29,880 Raw materials .................... 9,280 9,132 ----------------- ------------------ 52,670 50,998 LIFO reserve ..................... (7,375) (6,602) ----------------- ------------------ 45,295 44,396 Supplies ......................... 10,420 10,383 ================= ================== $55,715 $54,779 ================= ================== 3. Income Taxes: The provision for income taxes for the quarters October 31, 1996 and 1995 are summarized by the following effective tax rate reconciliations: Quarter ended October 31, ------------------------------------- 1996 1995 ------------------ ----------------- Federal statutory tax rate ........... 35.0% 35.0% Effect of: State taxes, net of federal benefit .......... 1.8 2.2 Foreign sales corporation benefit.... (2.8) (1.3) Other .............................. 1.0 (1.5) ================== ================= Effective tax rate ................. 35.0% 34.4% ================== ================= The income tax provision for the quarter ended October 31, 1996 was recorded based on the Company's projected effective income tax rate for the fiscal year ended July 31, 1997. 4. Contingencies: The Company has investigated the regulatory requirements related to closing a pond located on its Louisville, KY facility which was used to store non-hazardous production waste. In November 1993, the Company contacted the Kentucky Department of Environmental Protection (the Agency) and informed the Agency that based on the Company's investigations of the historical facts related to the pond, the Company does not believe that any further remedial actions are required. The Agency has not yet responded to the Company's findings. The Company operates a permitted landfill for the disposal of residual wastes at its St. Mary's facility. The adoption of new residual waste regulations in Pennsylvania, coupled with decreasing capacity, will require the 8 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED upgrading or closure of this landfill by July 1997. The Company has decided to close the landfill and contract outside of the Company for disposal services. The Company's closure plan was approved by the Pennsylvania Department of Environmental Resources during fiscal 1995 and consists of on-going stage closure activities through July 1997, followed by a 15 year monitoring commitment. Total costs related to the landfill closure and monitoring process are expected to be approximately $0.8 million. Costs not accrued as of October 31, 1996 are not material. The timing of payments related to these activities, including payments for disposal services, is not expected to materially impact the Company's cash flow in the future. During fiscal 1995, the Company was named as a third-party defendant in a Superfund action in Federal District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, in the Asset Purchase Agreement by which the Company acquired assets from The BOC Group, plc (BOC), BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and agreed to indemnify the Company for certain losses associated therewith in accordance with the terms of the Asset Purchase Agreement. In addition, BOC asserts that the liability in this matter was settled by a 1992 agreement with the plaintiffs in the present case. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. The Company is also party to 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 Unaudited Condensed Consolidated Balance Sheet as of October 31, 1996. As of October 31, 1996, a $0.5 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 5. Other Items: Other Compensation Other compensation for the quarter ended October 31, 1996 includes $0.2 million accrued under the Company's Incentive Bonus Plan. Other compensation for the quarter ended October 31, 1995 includes a $0.3 million non-cash charge for the revaluation of the Company's performance unit plan in connection with the Company's initial public offering of its Common Stock. The revaluation resulted from the increase in the fair market value of the Company's Common Stock which was a result of the offering. Other compensation for the quarter ended October 31, 1995 also included a $0.2 million charge for the vesting of benefits that were paid under the performance unit plan at the end of fiscal 1996. Other Income In October 1994, the Company formally entered into a long-term contract with an engineering design and consulting firm to provide process design expertise and training services related to the construction of a graphite electrode plant in the People's Republic of China. Revenue related to the contract was recognized as services were performed for the process-design-expertise portion of the contract. Other income for the quarter ended October 31, 1995 represents $0.4 million in revenues earned under the process-design-expertise portion of the contract, less 9 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED applicable expenses. Total revenues under the contract were expected to be approximately $5.2 million, $4.1 million of which has been recognized as of October 31, 1996. At this time, the project has been delayed by the Chinese government, and management cannot determine whether or not the balance of the revenue expected under the contract will be realized. Special Financing Expenses Special financing expenses for the quarter ended October 31, 1995 represent accounting, legal, printing and other fees related to the Company's initial public offering of its Common Stock. Extraordinary Loss on Early Extinguishment of Debt During the quarter ended October 31, 1995, the Company repurchased $11.4 million in aggregate principal amount of its 11.5% Senior Notes due 2003 (the Senior Notes) in an open market transaction (the Repurchase). The Repurchase resulted in an $0.8 million net extraordinary charge for the payment of the premium associated with the Repurchase and the write off of unamortized deferred financing fees associated with the original issuance of the Senior Notes repurchased. 10 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, 1996 The following table sets forth certain financial information for the quarters ended October 31, 1996 and 1995 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Form 10-Q:
Quarter Ended October 31, ------------------------------- 1996 1995 ------------- ------------- (Unaudited) Net sales: Graphite electrode products ........................................ $48,313 $43,289 Calcium carbide products ........................................... 19,403 20,587 ------------- ------------- Total net sales .............................................. $67,716 $63,876 Percentage of net sales: Graphite electrode products ........................................ 71.3 % 67.8 % Calcium carbide products ........................................... 28.7 32.2 ------------- ------------- Total net sales .............................................. 100.0 % 100.0 % Gross profit as a percentage of segment net sales: Graphite electrode products ........................................ 18.8 % 15.9 % Calcium carbide products ........................................... 14.1 18.3 Percentage of total net sales: Total gross profit ................................................. 17.4 % 16.7 % Selling, general and administrative ................................ 5.9 5.0 Operating income ................................................... 11.1 11.4 Income from continuing operations .................................. 5.2 4.2
Net sales for the quarter ended October 31, 1996 were $67.7 million, versus $63.9 million in the prior year comparable quarter, a 6% increase. Graphite electrode product sales increased 11.6% over the prior year to $48.3 million, while calcium carbide product sales decreased 5.8% to $19.4 million. Within the graphite electrode products segment, graphite electrode net sales were $35.2 million, a 7.6% increase over the prior year comparable quarter resulting primarily from a 6.5% increase in the average net sales price. Graphite electrode shipments increased to 26.8 million pounds from 26.5 million pounds in the prior year comparable quarter. Domestic and foreign electrode shipments as a percentage of total electrode shipments were 48.7% and 51.3%, respectively, versus 44.2% and 55.8%, respectively, in the prior year comparable quarter. Needle coke sales were $5.1 million, versus $4.2 million a year ago, a 20.3% increase due to increased shipments and selling prices. Graphite specialty product sales were $8.0 million, a 26.7% increase over the prior year comparable quarter due primarily to increased shipments of bulk and granular graphite. Graphite specialty product sales in both quarters included approximately $4.0 million of sales at cost to SGL Carbon Corporation under a supply agreement which began in January 1995 and has a maximum term of three years (the SGL Supply Agreement). 11 Within the calcium carbide products segment, pipeline acetylene sales decreased 14.1% to $6.3 million due to a 15.8% decrease in acetylene deliveries. Pipeline acetylene deliveries were lower due to the effects of a scheduled maintenance shutdown by International Specialty Products and lower acetylene demand by DuPont. Desulfurization sales decreased 4.2% to $6.1 million due principally to lower shipments during the current quarter, which resulted from increased competition in this market. Other calcium carbide product sales of $7.0 million were up slightly over a year ago primarily due to increased shipments of electrically calcined anthracite coal. Gross profit as a percentage of graphite electrode product sales was 18.8%, versus 15.9% in the prior year comparable quarter. Benefits derived from increased graphite electrode product sales were partially offset by the negative effects of a three week maintenance shutdown at the Company's Seadrift, Texas needle coke facility and higher decant oil prices in the current quarter. Gross profit as a percentage of calcium carbide product was 14.1%, versus 18.3% a year ago. The decrease was due primarily to lower pipeline acetylene shipments and lower levels of production during the current quarter. Selling, general and administrative expenses were $4.0 million, versus $3.2 million in the prior year comparable quarter. The increase was primarily the result of a settlement of a lawsuit and the accrual of costs associated with the search for a new chief executive officer for the Company. Selling, general and administrative expenses are expected to return to historical levels for the balance of the fiscal year. Other compensation for the quarter ended October 31, 1996 includes $0.2 million accrued under the Company's Incentive Bonus Plan. Other compensation for the quarter ended October 31, 1995 includes a $0.3 million non-cash charge for the revaluation of the Company's performance unit plan in connection with the Company's initial public offering of its Common Stock. The revaluation resulted from the increase in the fair market value of the Company's Common Stock which was a result of the offering. Other compensation for the quarter ended October 31, 1995 also included a $0.2 million charge for the vesting of benefits that were paid under the performance unit plan at the end of fiscal 1996. In October 1994, the Company formally entered into a long-term contract with an engineering design and consulting firm to provide process design expertise and training services related to the construction of a graphite electrode plant in the People's Republic of China. Revenue related to the contract was recognized as services were performed for the process-design-expertise portion of the contract. Other income for the quarter ended October 31, 1995 represents $0.4 million in revenues earned under the process-design-expertise portion of the contract, less applicable expenses. Total revenues under the contract were expected to be approximately $5.2 million, $4.1 million of which has been recognized as of October 31, 1996. At this time, the project has been delayed by the Chinese government, and management cannot determine whether or not the balance of the revenue expected under the contract will be realized. Interest expense, net for the quarter ended October 31, 1996 was $2.1 million and included $2.4 million of interest expense associated with the Senior Notes, less $0.3 million in interest income associated with the Company's cash equivalents and short-term investments. The average outstanding balance of Senior Notes during the current quarter was $81.8 million. Interest expense, net for the quarter ended October 31, 1995 was $2.6 million and included $3.1 million of interest expense associated with the Senior Notes, less $0.6 million in interest income associated with the Company's cash equivalents and short-term investments. The average outstanding balance of Senior Notes during the prior year comparable quarter was approximately $104 million. Special financing expenses for the quarter ended October 31, 1995 represent accounting, legal, printing and other fees related to the Company's initial public offering of its Common Stock. The income tax provision for the quarter ended October 31, 1996 was recorded based on the Company's projected effective income tax rate for the fiscal year ended July 31, 1997. 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 12 sales corporation. See Note 3 to the Unaudited Condensed Consolidated Financial Statements for more details on the Company's effective tax rate. In connection with the Repurchase, the Company recorded a pre-tax charge of $1.4 million for the payment of the premium associated with the Repurchase and the write off of unamortized deferred financing fees related to the original issuance of the Senior Notes. This charge has been classified, net of the related $0.6 million tax benefit, as an extraordinary loss from the early extinguishment of debt in the Unaudited Consolidated Statement of Operations for the quarter ended October 31, 1995. Recently Issued Accounting Pronouncements On August 1, 1996, the Company adopted Statement of Financial Accounting Standards #121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS #121). The adoption of SFAS #121 had no impact on the Company's Unaudited Condensed Consolidated Financial Statements. On August 1, 1996, the Company adopted Statement of Financial Accounting Standards #123, "Accounting for Stock-Based Compensation" (SFAS #123). SFAS #123 establishes compensation measurement and recognition alternatives and disclosure requirements for stock-based compensation plans. The Company has elected to continue to use the compensation measurement and recognition principles set forth in Accounting Principles Board Opinion #25, "Accounting for Stock Issued to Employees" to account for its stock-based compensation plans, an alternative available under SFAS #123. The disclosure requirements of SFAS #123 will be adopted during the Company's preparation of its year-end consolidated financial statements for fiscal 1997. Liquidity and Capital Resources Liquidity The Company's liquidity needs are primarily for debt service, capital expenditures and working capital. As previously reported, the Company has undertaken a substantial modernization program with respect to its graphite electrode production facilities which is expected to result in approximately $34 million in capital improvements during fiscal 1997 and 1998. The Company believes that its liquidity, capital resources and cash flows from operations will be sufficient to fund all of its liquidity needs through at least the expiration of its revolving credit facility. The deferral of principal payments until 2003 under the Senior Note Indenture significantly reduces the Company's short-term debt service requirements. However, in the event that the Company's cash flows from operations and working capital are not sufficient to fund the Company's expenditures, including the modernization program, and service its indebtedness, the Company would be required to raise additional funds. There can be no assurance that sources of funds would be available in amounts sufficient for the Company to meet its obligations. Cash Flow Information Cash flow used for operations for the quarter ended October 31, 1996 was $3.8 million. Cash inflows from net income plus non-cash items of $6.3 million were offset by a $10.1 million net cash outflow due to changes in working capital items, principally an increase in customer accounts receivables of $5.7 million due to increased sales to foreign customers, and interest payments on Senior Notes totaling $4.7 million. Investing activities for the quarter ended October 31, 1996 included capital expenditures of $5.2 million and purchases of a short-term investments of $5.0 million. 13 PART II Item 1 LEGAL PROCEEDINGS During fiscal 1995, the Company was named as a third-party defendant in a Superfund action in Federal District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, in the Asset Purchase Agreement by which the Company acquired assets from The BOC Group, plc (BOC), BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and agreed to indemnify the Company for certain losses associated therewith in accordance with the terms of the Asset Purchase Agreement. In addition, BOC asserts that the liability in this matter was settled by a 1992 agreement with the plaintiffs in the present case. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. The Company is also party to 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 Unaudited Condensed Consolidated Balance Sheet as of October 31, 1996. As of October 31, 1996, a $0.5 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 14 PART II Item 6 A. INDEX TO EXHIBITS Exhibit Page - ------- ---- 11.1 Form of Computation of Earnings per Common Share .... 16 27.1 Financial Data Schedule (EDGAR Version Only) B. REPORTS ON FORM 8-K During the quarter ended October 31, 1996, the Company filed a Current Report on Form 8-K dated September 23, 1996 announcing that Nicholas T. Kaiser would be retiring, for personal reasons, from his positions as Chairman of the Board and Chief Executive Officer of the Company. Mr. Kaiser will remain on as a director of the Company. 15 Exhibit 11.1 FORM OF COMPUTATION OF EARNINGS PER COMMON SHARE for the quarters ended October 31, 1996 and 1995 (in thousands, except share and per share amounts)
Quarter Ended October 31, -------------------------------- 1996 1995 --------------- --------------- 1. Income from continuing operations ....................................... $3,523 $2,659 2. Extraordinary loss on debt repayment .................................... - (828) --------------- --------------- 3. Net income (1 + 2).................................................. $3,523 $1,831 --------------- --------------- 4. Weighted average shares outstanding ..................................... 8,335,522 6,678,920 5. Shares issuable under dilutive management stock options ............................................ 441,659 1,466,958 --------------- --------------- 6. Common and common equivalent shares outstanding (4 + 5).................. 8,777,181 8,145,878 --------------- --------------- Per share information: Income from continuing operations (1 / 6) .............................. $0.40 $0.33 Extraordinary loss on debt repayment (2 / 6) .......................... - (0.11) =============== =============== Net income (3 / 6) ............................................... $0.40 $0.22 =============== ===============
16 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 11, 1996. Signature Title - ----------------------- --------------------------------------------------- /s/ Nicholas T. Kaiser Chief Executive Officer (Principal Executive Officer) - ----------------------- (Nicholas T. Kaiser) /s/ Stephen D. Weaver Vice President - Finance and Chief Financial Officer - ----------------------- (Principal Financial Officer) (Stephen D. Weaver) /s/ Jeffrey T. Jones Controller (Principal Accounting Officer) - ----------------------- (Jeffrey T. Jones) 17 EX-27 2 FDS
5 THE 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, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-Mos Jul-31-1997 Aug-01-1996 Oct-31-1996 2,650 15,235 52,952 (1,926) 55,715 137,913 244,131 (176,353) 212,340 31,123 81,763 0 0 95 79,181 212,340 67,716 67,716 55,900 59,921 267 0 2,105 5,423 1,900 3,523 0 0 0 3,523 0.40 0.40
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