-----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, BMhGCiCo9A7LzSo0rmK5ieKhvJGt5HJi72+yCgGFaTkuYniwsgbkOIA2bMieS6WY 0Bl0WVKYGVy576zMAtKlqQ== 0000950128-99-001208.txt : 19991216 0000950128-99-001208.hdr.sgml : 19991216 ACCESSION NUMBER: 0000950128-99-001208 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 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: SEC FILE NUMBER: 001-15055 FILM NUMBER: 99774715 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 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER -- 0-20490 ---------------------- THE CARBIDE/GRAPHITE GROUP, INC. (Exact Name of Registrant as Specified in Charter) Delaware 25-1575609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Code) One Gateway Center, 19th Floor Pittsburgh, PA 15222 (412) 562-3700 (Address, including zip code, and telephone number, including area code, of principle executive offices) - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of the close of business on December 12, 1999, there were 8,312,842 shares of the Registrant's $0.01 par value Common Stock outstanding. 2 THE CARBIDE/GRAPHITE GROUP, INC. INDEX TO FORM 10-Q ITEM DESCRIPTION PAGE ------ -------------------------------------------------------- ------ PART I ------ 1 Index to Financial Statements ......................... 2 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .............. 14 3 Quantitative and Qualitative Disclosure About Market Risk................................. 19 PART II ------- 1 Legal Proceedings ..................................... 20 2 Changes in Securities and Use of Proceeds ............. * 3 Defaults Upon Senior Securities ....................... * 4 Submission of Matters to a Vote of Security Holders ... * 5 Other Information ..................................... * 6 Index to Exhibits and Reports on Form 8-K ............. 23 Signatures ............................................ 24 - -------------- * Item not applicable to the Registrant for this filing on Form 10-Q. 1 3 PART I Item 1 INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS DESCRIPTION PAGE - ---------------------------------------------------------------------- ------ Condensed Consolidated Balance Sheets as of October 31, 1999 and July 31, 1999 ........................ 3 Unaudited Consolidated Statements of Operations for the Quarters Ended October 31, 1999 and 1998 ................ 4 Unaudited Consolidated Statement of Stockholders' Equity for the Quarter Ended October 31, 1999 .......................... 5 Unaudited Consolidated Statements of Cash Flows for the Quarters Ended October 31, 1999 and 1998 ........................ 6 Footnotes to Unaudited Condensed Consolidated Financial Statements ... 7 2 4 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of October 31, 1999 and July 31, 1999 (in thousands, except share information)
October 31, July 31, 1999 1999 * ----------- ---------- (Unaudited) ASSETS Current assets: Accounts receivable -- trade, net of allowance for doubtful accounts: $736 at October 31 and $819 at July 31 ................. $40,675 $37,997 Inventories (Note 2) ................................................... 75,333 73,621 Income taxes receivable ............................................... -- 6,592 Deferred income taxes .................................................. 12,093 12,093 Other current assets ................................................... 5,275 5,989 ----------- ---------- Total current assets ............................................... 133,376 136,292 Property, plant and equipment, net ......................................... 128,513 130,342 Other assets ............................................................... 8,313 7,782 ----------- ---------- Total assets ................................................... $270,202 $274,416 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accrued expenses: Overdrafts ........................................................... $5,312 $4,079 Accounts payable, trade .............................................. 12,026 16,937 Antitrust claims reserve (Note 4) .................................... 19,951 21,404 Other current liabilities ............................................ 15,393 18,268 ----------- ---------- Total current liabilities .......................................... 52,682 60,688 Long-term debt (Note 5) .................................................... 113,200 110,500 Other liabilities .......................................................... 22,111 21,911 ----------- ---------- Total liabilities ................................................ 187,993 193,099 ----------- ---------- Stockholders' equity: Preferred stock, $0.01 par value; 2,000,000 shares authorized; none outstanding .................................................. -- -- Common stock, $0.01 par value; 18,000,000 shares authorized; shares issued: 9,937,042 at October 31 and July 31; shares outstanding: 8,337,842 at October 31 and July 31 ........... 99 99 Additional paid-in capital, net of $1,398 equity issue costs ........... 36,616 36,616 Retained earnings ..................................................... 56,487 55,595 Other stockholders' equity items ...................................... (10,993) (10,993) ----------- ---------- Total stockholders' equity ...................................... 82,209 81,317 ----------- ---------- Total liabilities and stockholders' equity ..................... $270,202 $274,416 =========== ==========
- -------------- * Summarized from audited fiscal 1999 balance sheet. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 3 5 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS for the quarters ended October 31, 1999 and 1998 (in thousands, except share and per share data)
Quarter Ended October 31, ---------------------------------------- 1999 1998 ------------------- ------------------- (Unaudited) Net sales .............................................................. $51,123 $69,352 Operating costs and expenses: Cost of goods sold ................................................. 44,703 59,332 Selling, general and administrative ................................ 2,980 3,584 Other expense (Note 6) ............................................. -- 8,043 ------------------ ------------------ Operating income (loss) ........................................ 3,440 (1,607) Other costs and expenses: Interest expense, net ............................................... 2,092 1,458 ------------------ ------------------ Income (loss) before income taxes and extraordinary loss ....... 1,348 (3,065) Provision for (benefit from) income taxes (Note 3) ..................... 456 (1,072) ------------------ ------------------ Net income (loss) ............................................. $892 ($1,993) ================== ================== Earnings per share information (Note 1): - ---------------------------------------- Weighted average common shares outstanding ............................. 8,337,842 8,529,075 ------------------ ------------------ Weighted average common and common equivalent shares outstanding ................................. 8,351,807 -- ------------------ ------------------ Net income (loss): Basic ................................................................ $0.11 ($0.23) ================== ================== Diluted .............................................................. $0.11 ($0.23) ================== ==================
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 4 6 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the quarter ended October 31, 1999 (in thousands, except share amounts)
Common Stock Additional Other Comprehensive ------------------------ Paid-In Retained Stockholders' Income Shares Amount Capital Earnings Equity Items ----------------- ------------ ---------- ------------- ------------ --------------- Balance at July 31, 1999 *.......... 9,937,042 $99 $36,616 $55,595 ($10,993) Net income ....................... $892 892 ================= ------------ ---------- ------------- ------------ --------------- Balance at October 31, 1999 (Unaudited) ................ 9,937,042 $99 $36,616 $56,487 ($10,993) ============ ========== ============= ============ ===============
- --------------- * Summarized from audited fiscal year 1999 statement of stockholders' equity. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 5 7 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS for the quarters ended October 31, 1999 and 1998 (in thousands)
Quarter Ended October 31, ---------------------------------- 1999 1998 --------------- --------------- (Unaudited) Net income (loss) .......................................................... $892 ($1,993) Adjustments for noncash transactions: Depreciation and amortization ........................................... 4,947 4,419 Amortization of debt issuance costs ..................................... 53 36 Amortization of intangible assets ....................................... 13 21 Adjustments to deferred taxes ........................................... -- (1,853) Loss on the impairment of assets ........................................ -- 5,742 Increase (decrease) in cash from changes in: Accounts receivable ..................................................... (2,738) (779) Inventories ............................................................. (1,712) 171 Income taxes ............................................................ 7,267 (832) Other current assets .................................................... 714 550 Accounts payable and accrued expenses ................................... (9,914) 2,004 Net change in other non-current assets and liabilities .................. (337) 504 --------------- --------------- Net cash provided by (used for) operations .......................... (815) 7,990 --------------- --------------- Investing activities: Capital expenditures .................................................... (3,118) (2,799) --------------- --------------- Net cash used for investing activities .............................. (3,118) (2,799) --------------- --------------- Financing activities: Funds from revolving credit facility .................................... 21,500 18,470 Repayments on revolving credit facility ................................. (18,800) (18,620) Purchase of treasury stock .............................................. -- (3,765) Other ................................................................... 1,233 (1,276) --------------- --------------- Net cash provided by (used for) financing activities ............... 3,933 (5,191) --------------- --------------- Net change in cash and cash equivalents ................................... -- -- Cash and cash equivalents, beginning of period ............................ -- -- =============== =============== Cash and cash equivalents, end of period .................................. -- -- =============== ===============
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 6 8 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Carbide/Graphite Group, Inc. and Subsidiaries herein are referenced as the "Company." The Company's current fiscal year ends July 31, 2000. 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: INTERIM ACCOUNTING The Company's Annual Report on Form 10-K for its fiscal year ended July 31, 1999 includes additional information about the Company, its operations and its consolidated financial statements, and contains a summary of significant accounting policies followed by the Company in preparation of its consolidated financial statements and should be read in conjunction with this quarterly report on Form 10-Q. These policies were also followed in preparing the Unaudited Condensed Consolidated Financial Statements included herein. The 1999 year-end consolidated balance sheet data contained herein were derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments that are of a normal and recurring nature necessary for a fair statement of the results of operations of these interim periods have been included. The net income for the quarter ended October 31, 1999 is not necessarily indicative of the results to be expected for the full fiscal year. The Management Discussion and Analysis that follows these notes contains additional information on the results of operations and financial position of the Company. These comments should be read in conjunction with these financial statements. EARNINGS PER SHARE The following table provides a reconciliation of the income (loss) and share amounts for the basic and diluted earnings per share computations for income (loss) from operations for the quarters ended October 31, 1999 and 1998 (dollar amounts in thousands):
For the quarters ended October 31, ------------------------------------------------------------------------ 1999 1998 ---------------------------------- ------------------------------------- Per Per Income Share Income Share (Loss) Shares Amount (Loss) Shares Amount -------- ---------- -------- ------- ---------- --------- Basic earnings per share........ $892 8,337,842 $0.11 ($1,993) 8,529,075 ($0.23) ======= ========= Effect of dilutive securities: Options for common stock...... -- 13,965 -- -- ------ ---------- ------- ----------- Diluted earnings per share...... $892 8,351,807 $0.11 ($1,993) 8,529,075 ($0.23) ====== ========== ======= ======= =========== =========
Since the Company's results from operations were a net loss for the quarter ended October 31, 1998, common equivalent shares were excluded from the diluted earnings per share computation for the period as their effect would have been anti-dilutive. 7 9 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Company is required to adopt Statement of Financial Accounting Standards #133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS #133) for all of the quarters in its fiscal year ending July 31, 2001. SFAS #133 establishes accounting and reporting standards for derivatives and hedging activities. The Company has not yet completed its evaluation of the financial accounting and reporting impact of SFAS #133. 2. INVENTORIES: Inventories consisted of the following (in thousands):
October 31, July 31, 1999 1999 ---------- -------- Finished goods .................... $ 23,179 $ 22,386 Work in process ................... 44,931 43,723 Raw materials ..................... 13,031 13,429 -------- -------- 81,141 79,538 LIFO reserve ...................... (16,429) (16,487) -------- -------- 64,712 63,051 Supplies .......................... 10,621 10,570 -------- -------- $ 75,333 $ 73,621 ======== ========
3. INCOME TAXES: The provision for (benefit from) income taxes for the quarters ended October 31, 1999 and 1998 are summarized by the following effective tax rate reconciliations:
Quarter ended October 31, ------------------------- 1999 1998 ------ ------ Federal statutory tax rate...................... 35.0 % (35.0)% Effect of: State taxes, net of federal benefit........ 1.4 1.4 Foreign sales corporation benefit ......... (1.6) (1.6) Other...................................... (1.0) 0.2 ------ ------ Effective tax rate ...................... 33.8 % (35.0)% ====== ======
The income tax provision for the quarter ended October 31, 1999 was recorded based on the Company's projected effective income tax rate for the fiscal year ending July 31, 2000. 8 10 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 4. CONTINGENCIES: In May 1997, the Company was served with a subpoena issued by a Grand Jury empanelled by the United States District Court for the Eastern District of Pennsylvania. The Company was advised by attorneys for the Department of Justice (DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the past five years. The Company is cooperating with the DOJ in the investigation. The DOJ has granted the Company and certain former and present senior executives the opportunity to participate in its Corporate Leniency Program and the Company has entered into an agreement with the DOJ under which the Company and such executives who cooperate will not be subject to criminal prosecution with respect to the investigation if charges are issued by the Grand Jury. Under the agreement, the Company has agreed to use its best efforts to provide for restitution to its domestic customers for actual damages if any conduct of the Company which violated the Federal Antitrust Laws in the manufacture and sale of such graphite products caused damage to such customers. Subsequent to the initiation of the DOJ investigation, four civil cases were filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers for violations of the Sherman Act. These cases, which have been consolidated, name the Company, UCAR International, Inc. (UCAR), SGL Carbon Corporation (SGL Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants) and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case initiated a separate action in the same District Court which asserts substantially the same claims and seeks the same relief as the consolidated case and names the Named Defendants, as well as Showa Denko Carbon, Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants, Showa Denko and, in several cases, certain present or former related parties of UCAR and Showa Denko, asserting substantially the same claims and seeking the same relief as in the consolidated case. Four such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998 but has been transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court for the Western District of Pennsylvania on June 17, 1998 but has also been transferred to the Eastern District of Pennsylvania for pre-trial proceedings. The complaints or amended complaints in some of the cases have also named as defendants other companies including Mitsubishi Corporation, Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the Company was served with a complaint filed by Chaparral Steel Company against the Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in state court in Ellis County, Texas alleging violations of various Texas state antitrust laws and seeking treble damages. Chaparral Steel Company has filed an amended complaint adding two additional related plaintiffs and a second amended complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and VAW Carbon GMBH. The Company has reached settlement agreements representing approximately 96% of domestic antitrust claims with the class plaintiffs and the plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998, May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other purchasers who had yet to file lawsuits. The settlement agreement with the class has received preliminary approval by the Court but is still subject to final approval. The settlement with the class plaintiffs, which contemplates possible payments to certain foreign purchasers, allows the Company to terminate the settlement if the claims of foreign purchasers who opt out of the class settlement exceed certain levels and allows the class plaintiffs to terminate the settlement agreement if the Company's sales to certain foreign purchasers, as defined in the settlement agreement, exceed certain levels. 9 11 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED Although various of the settlements are unique, in the aggregate they consist generally of current and deferred cash payments and, in a number of cases, provisions which provide for additional payments under certain circumstances ("most favored nations" provisions). In addition to the settlements discussed above, the Company may also settle with various additional purchasers. On February 10, 1999, a U.S. corporation which allegedly made purchases on behalf of two foreign entities and a group of 22 foreign purchasers which are based in several foreign countries filed a complaint against the Company, UCAR, SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd., SEC Corporation and certain present and former related parties of UCAR in United States District Court for the Eastern District of Pennsylvania. This complaint has been amended to add four additional defendants. On September 24, 1999, three Australian companies and one New Zealand company filed a complaint against the same parties as are named in the lawsuit filed on February 10, 1999. These cases assert substantially the same claims and seek the same relief as the consolidated case. Other foreign purchasers have also made similar claims against the Company but have not filed lawsuits. The Company understands that defendants UCAR and Showa Denko have reached settlement agreements with the class action plaintiffs, which have been approved by the court, and have also settled claims brought by various individual purchasers. The Company further understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler, Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have agreed to plead or have pleaded guilty to antitrust conspiracy charges filed by the DOJ and have agreed to or been ordered to pay fines and, in the case of Messrs. Krass and Hart, have agreed to serve prison sentences, in connection with those guilty pleas or agreements to plead guilty. The Company has also advised the Commission of the European Communities (the European Commission) that it wishes to invoke its Leniency Notice. Generally under these guidelines, the European Commission may reduce fines and other penalties if a company sufficiently cooperates with the European Commission. The Company understands that the European Commission will determine fines, if any, at the completion of its proceedings. On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the Ontario Court (General Division) claiming a conspiracy and violations of the Canadian Competition Act. The Canadian lawsuit names the Named Defendants and Showa Denko, as well as several present or former parents, subsidiaries and/or affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer Law Division (Canadian Division) has initiated an inquiry and the Company is cooperating fully with the authorities conducting that inquiry pursuant to an agreement with the Director of Research and Investigation of the Canadian Division under which the Company and its present and former officers, directors and employees will not be subject to criminal prosecution. During fiscal 1998, the Company recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999, the Company recorded an additional $7.0 million charge ($4.5 million after expected tax benefits) for such potential liabilities (the Supplemental Antitrust Charge). The combined $45.0 million charge (the Antitrust Charge) represents the Company's estimate, based on current facts and circumstances, of the expected cost to resolve pending antitrust claims. The Company understands that defendants UCAR and Showa Denko have reached settlements with the class action plaintiffs and various individual purchasers at amounts substantially higher than the levels contemplated in the Antitrust Charge. In light of these and other developments including: (a) possible future settlements with other purchasers and the effect of the possible additional payments ("most favored nations") noted above, (b) the outcome of the European Commission antitrust investigation, (c) potential additional lawsuits by foreign purchasers, (d) the failure to satisfy the conditions to the class action settlement, and (e) adverse rulings or judgments in pending litigation, the antitrust matters could result in aggregate liabilities and costs which could 10 12 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED differ materially and adversely from the Antitrust Charge and could affect the Company's financial condition and its ability to service its currently planned liquidity needs. As of October 31, 1999, $25.0 million in antitrust settlements and costs had been paid. The Company is also involved in various legal proceedings considered incidental to the conduct of its business or otherwise not material in the judgement of management. Management does not believe that its loss exposure related to these cases is materially greater than amounts provided in the consolidated balance sheet as of October 31, 1999. As of October 31, 1999, a $0.2 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 5. LONG-TERM DEBT: In connection with the tender of substantially all of the Company's 11.5% Senior Notes in fiscal 1998, the Company entered into an agreement with a consortium of banks led by PNC Bank for a $150 million revolving credit facility with a $15 million sub-limit for letters of credit which will expire in December, 2003 (as amended, the 1997 Revolving Credit Facility). Interest under the 1997 Revolving Credit Facility is based on, at the option of the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread based on a leverage calculation (specifically, the Consolidated Total Indebtedness to EBITDA Ratio). As of October 31, 1999, the interest rate on borrowings outstanding under the 1997 Revolving Credit Facility was 6.8%. Repayment of funds borrowed under the credit agreement is not required until the expiration of the facility. The most restrictive covenants under the 1997 Revolving Credit Facility include a maximum Consolidated Total Indebtedness to EBITDA Ratio of 3.75 to 1.0, a minimum Interest Coverage Ratio of 3.5 to 1.0 and a minimum Consolidated Tangible Net Worth, all as defined in the 1997 Revolving Credit Facility agreement. The 1997 Revolving Credit Facility agreement, as amended, excludes the Antitrust Charge from EBITDA for both pricing and covenant calculation purposes. The 1997 Revolving Credit Facility is collateralized with receivables, inventory and substantially all of the Company's property, plant and equipment. As of October 31, 1999, the Company had $30.0 million available under the 1997 Revolving Credit Facility. As of October 31, 1999, borrowings totaled $113.2 million and outstanding letters of credit were $6.8 million. Effective December 10, 1999, the Company amended its 1997 Revolving Credit Facility. The amendment temporarily reduces the minimum Interest Coverage Ratio, reduces the minimum Consolidated Tangible Net Worth requirement and temporarily increases the maximum Consolidated Total Indebtedness to EBITDA Ratio to accommodate the expected impact of a working capital improvement program being implemented by the Company during fiscal 2000. Interest costs on the 1997 Revolving Credit Facility will be calculated based on a floating LIBOR rate plus 2.25% until the Interest Coverage Ratio increases above 3.50 to 1.0 and the Consolidated Total Indebtedness to EBITDA Ratio decreases below 3.75 to 1.0. Commitments for borrowings under the 1997 Revolving Credit Facility will be reduced from $150 million to $140 million as of January 31, 2000 and the Company will have the option to complete its remaining $4.3 million share repurchase program through the end of fiscal 2000 if it achieves certain debt levels. 11 13 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 6. OTHER ITEMS: OTHER EXPENSE During the quarter ended October 31, 1998, the Company announced plans to close certain baking and graphitizing operations at its St. Marys, Pennsylvania plant. Other expense in the quarter ended October 31, 1998 represents an $8.0 million pre-tax charge to provide for the estimated cost of the facility closure activities. Included in this charge is $5.7 million for the net write-off of impaired fixed assets and spare parts inventory, $1.4 million for hourly and salary workforce severance costs and $0.9 million in other closure-related costs. Essentially all of these costs were funded during the Company's fiscal year ended July 31, 1999. 12 14 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED 7. SEGMENT INFORMATION: Information about the Company's reportable segments as of October 31 and July 31, 1999 and for the quarters ended October 31, 1999 and 1998 follows (amounts in thousands):
Quarter Ended October 31, --------------------------------------- 1999 1998 ------------------ ------------------ Net sales to customers: Graphite electrode products ............................................ $39,654 $53,503 Calcium carbide products ............................................... 11,469 15,849 ------------------ ------------------ Total net sales to customers ....................................... 51,123 69,352 ------------------ ------------------ Intersegment sales, at prevailing market prices: Graphite electrode products ............................................ 24 47 Eliminations ........................................................... (24) (47) ------------------ ------------------ Total net sales .................................................... $51,123 $69,352 ================== ================== Operating income (loss): Graphite electrode products (a) ........................................ $3,676 $6,776 Calcium carbide products ............................................... 862 1,436 Unallocated corporate expenses ......................................... (1,098) (9,819) ------------------ ------------------ Operating income (loss) ............................................ 3,440 ($1,607) ================== ================== Depreciation and amortization: Graphite electrode products ........................................... $4,507 $3,994 Calcium carbide products ............................................... 411 399 Unallocated corporate .................................................. 42 45 ------------------ ------------------ Total depreciation and amortization ................................ $4,960 $4,438 ================== ================== EBITDA: (b) Graphite electrode products ........................................... $8,183 $10,770 Calcium carbide products ............................................... 1,273 1,835 Unallocated corporate .................................................. (1,056) (1,731) ------------------ ------------------ Total EBITDA ....................................................... $8,400 $10,874 ================== ================== October 31, July 31, 1999 1999 ------------------ ------------------ Total assets: Graphite electrode products ........................................... $226,336 $224,773 Calcium carbide products ............................................... 28,303 27,888 Corporate assets ....................................................... 15,563 21,755 ------------------ ------------------ Total assets ....................................................... $270,202 $274,416 ================== ==================
(a) Excludes other expenses in the quarter ended October 31, 1998 which are included in "unallocated corporate expenses" (See Note 6). (b) EBITDA is defined as operating income (loss) before depreciation and amortization and other expenses. EBITDA is not presented as a measure of operating results under generally accepted accounting principles. However, management believes that EBITDA is an appropriate measure of the Company's ability to service its cash requirements. EBITDA is an important measure in assessing the performance of the Company's business segments. 13 15 PART I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FOR THE FISCAL FIRST QUARTER ENDED OCTOBER 31, 1999 VERSUS 1998 The following table sets forth certain financial information for the quarters ended October 31, 1999 and 1998 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Form 10-Q:
Quarter Ended October 31, -------------------------------- 1999 1998 -------------- ------------- (Unaudited) Net sales: Graphite electrode products ......................................... $39,654 $53,503 Calcium carbide products ............................................ 11,469 15,849 -------------- ------------- Total net sales ............................................... $51,123 $69,352 ============== ============= Percentage of net sales: Graphite electrode products ......................................... 77.6 % 77.1 % Calcium carbide products ............................................ 22.4 22.9 -------------- ------------- Total net sales ............................................... 100.0 % 100.0 % ============== ============= Gross profit as a percentage of segment net sales: Graphite electrode products ......................................... 12.7 % 15.2 % Calcium carbide products ............................................ 12.0 12.1 Percentage of total net sales: Total gross profit .................................................. 12.6 % 14.4 % Selling, general and administrative ................................. 5.8 5.2 Operating income (loss) ............................................. 6.7 (2.3) Net income (loss) ................................................... 1.7 (2.9)
---------------- Net sales for the quarter ended October 31, 1999 were $51.1 million versus $69.4 million in the prior year comparable quarter, a 26.3% decrease. Graphite electrode product sales decreased 25.9% from the prior year comparable quarter to $39.7 million, while calcium carbide product sales decreased 27.6% to $11.5 million. Within the graphite electrode products segment, graphite electrode net sales were $30.5 million, a 21.8% decrease resulting from a 10.9% decrease in electrode shipments and a 12.3% decrease in average electrode prices. Weakness in certain regions of the global economy continued to have a negative impact on graphite electrode demand during the quarter ended October 31, 1999. Graphite electrode shipments totaled 26.8 million pounds versus 30.0 million pounds in last year's first quarter. Domestic and foreign electrode shipments as a percentage of total electrode shipments for the quarter ended October 31, 1999 were 54.6% and 45.4%, respectively, versus 54.9% and 45.1%, respectively, in last year's first quarter. Domestic graphite electrode prices decreased 9.4% in the current quarter as compared to last year's first quarter as weakness in the U.S. steel industry during the second half of 1998 and first half of 1999 negatively impacted domestic pricing. Average foreign electrode prices deceased 16.8% in the current quarter versus last year's first quarter due to the continued strength of the U.S. dollar against 14 16 the Euro and weaker demand overseas during the first half of 1999. The Company expects demand for graphite electrodes to improve throughout the remainder of fiscal 2000 as the global economy improves and world-wide production of electric arc furnace steel increases. This trend is expected to result in an increase in graphite electrode shipments in fiscal 2000 as compared to fiscal 1999. Needle coke sales were $4.8 million versus $8.6 million a year ago, with the decrease resulting from a 32.0% decrease in needle coke shipments and a 16.7% decrease in average needle coke prices. Shipments and average prices for needle coke were lower during the current quarter due to weaker demand for needle coke that was primarily the result of lower demand for and production of graphite electrodes. A higher mix of foreign shipments during the current quarter also negatively impacted average needle coke prices. Graphite specialty product sales during the quarter ended October 31, 1999 were $4.3 million versus $6.0 million in the prior year comparable quarter. The decrease in sales was attributable to a decrease in bulk and granular graphite shipments. Within the calcium carbide products segment, acetylene sales (which includes pipeline acetylene and calcium carbide for fuel gas applications) decreased 42.2% to $5.5 million for the quarter ended October 31, 1999. The decrease in sales was due to lower shipments. ISP, the Company's largest pipeline acetylene customer, reduced their demand for the Company's acetylene during fiscal 1999 by approximately 75% of its historical levels. This reduction in demand continued into the quarter ended October 31, 1999 and may be permanent. Scheduled maintenance outages by the Company's pipeline acetylene customers also negatively impacted demand during the current quarter. Sales of calcium carbide for metallurgical applications were $4.5 million which was 14.8% lower than last year's comparable quarter. Weakness in the domestic steel market as well as substitute products had a negative impact on demand for calcium carbide for metallurgical applications. Net sales of acetylene and calcium carbide for metallurgical applications are expected to remain at lower levels throughout fiscal 2000 and, potentially, beyond as a result of increased competition and weak demand in these product lines. Gross profit as a percentage of graphite electrode product sales for the quarter ended October 31, 1999 was 12.7% versus 15.2% in the prior year comparable quarter. The decrease in the gross margin was primarily the result of lower shipments of and net prices for graphite electrodes and needle coke. In addition, Seadrift Coke, L.P. took a scheduled maintenance outage during the current quarter that negatively impacted plant operating efficiency. Also, depreciation and amortization was $0.5 million higher during the current quarter, which negatively impacted the gross profit margin by 1.0%. Gross profit as a percentage of calcium carbide product sales was essentially unchanged as compared to last year's first quarter at 12.0%. Selling, general and administrative expenses for the quarter ended October 31, 1999 were $3.0 million versus $3.6 million in last year's comparable quarter. The decrease was primarily due to the cost saving initiative implemented by the Company during fiscal 1999. During the quarter ended October 31, 1998, the Company announced plans to close certain baking and graphitizing operations at its St. Marys, Pennsylvania plant resulting in a 12% reduction in the Company's graphite electrode production capacity. Other expense in the quarter ended October 31, 1998 represents an $8.0 million pre-tax charge to provide for the estimated cost of the facility closure activities. Included in this charge is $5.7 million for the net write-off of impaired fixed assets and spare parts inventory, $1.4 million for hourly and salary workforce severance costs and $0.9 million in other closure-related costs. Net interest expense for the quarter ended October 31, 1999 was $2.1 million representing interest, amortization and fees associated with the Company's revolving credit facility. Net interest expense for the quarter ended October 31, 1998 was $1.5 million and included $2.0 million of interest and amortization expense associated with the Company's revolving credit facility, less $0.5 million of capitalized interest. The income tax provision for the quarter ended October 31, 1999 was recorded based on the Company's projected effective income tax rate for the fiscal year ending July 31, 2000. The current year effective rate differs 15 17 differs from the federal statutory rate due primarily to state taxes, offset by benefits derived from the Company's foreign sales corporation. During the quarter ended October 31, 1999, the Company announced that it was implementing a working capital improvement program during fiscal 2000. While this program is expected to have a positive effect on operating cash flows, the program may result in the Company reporting a net loss from operations for the quarters ending January 31, 2000 and April 30, 2000 and for the fiscal year ending July 31, 2000. See a more detailed description of the Company's working capital improvement program under "Liquidity and Capital Resources" below. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS The Company is required to adopt Statement of Financial Accounting Standards #133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS #133) for all of the quarters in its fiscal year ending July 31, 2001. SFAS #133 establishes accounting and reporting standards for derivatives and hedging activities. The Company has not yet completed its evaluation of the financial accounting and reporting impact of SFAS #133. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity needs are primarily for capital expenditures, working capital (including antitrust settlements) and debt service on its revolving credit facility. The weakness in certain regions of the global economy and its impact on demand for the Company's products has resulted in the deferment of certain discretionary capital projects. The Company currently estimates that it will spend approximately $10 million in capital improvements during its fiscal year ending July 31, 2000. In addition, the Company currently estimates that it will fund approximately $20 million in antitrust payments during fiscal 2000. The recent increase in prices of oil (a major raw material for the Company's needle coke affiliate, Seadrift Coke, L.P.) has resulted in an increased working capital requirement for this raw material. During the quarter ended October 31, 1999, the Company announced that it was implementing a working capital improvement program during fiscal 2000. In connection with this program, the Company has temporarily reduced graphite electrode and needle coke production in order to reduce inventory levels and further improve the Company's cost structure. This program is expected to have a positive effect on operating cash flows as cash outflows for raw materials, labor and utilities will be reduced during the period of lower production. However, the program is expected to have a negative impact on the Company's operating results during the period of reduced production, as the Company will not realize operating efficiencies typical of higher levels of production. This situation may result in the Company reporting a net loss from operations for the quarters ending January 31, 2000 and April 30, 2000 and for the fiscal year ending July 31, 2000. The program has resulted in the temporary layoff of approximately 180 employees. The Company believes that its cash flows from operations (including the expected benefits of its working capital improvement initiative described above) and availability under its revolving credit facility (as amended and more fully described below) will be sufficient to fund all of its currently planned liquidity needs through at least the expiration of its revolving credit facility in December 2003. However, the terms and conditions of any settlements of pending antirust claims may adversely impact the Company's expected liquidity needs. Also, the Company's expected cash flows from operations could be negatively impacted if weak demand for the Company's products continues or increased oil costs continue for an extended period of time. In the event that such resources are not available to fund the Company's planned capital expenditures, service its indebtedness and pay any other obligation including those that may arise from pending legal proceedings and the resolution of current antitrust matters, the Company may be required to refinance or renegotiate its revolving credit facility, obtain additional funding or 16 18 further delay discretionary capital projects. If the Company were required to refinance or renegotiate its revolving credit facility or obtain additional funding to satisfy its liquidity needs, there can be no assurance that funds would be available in amounts sufficient for the Company to meet its obligations or on terms favorable to the Company. In connection with the tender of substantially all of the Company's 11.5% Senior Notes in fiscal 1998, the Company entered into an agreement with a consortium of banks led by PNC Bank for a $150 million revolving credit facility with a $15 million sub-limit for letters of credit which will expire in December, 2003 (as amended, the 1997 Revolving Credit Facility). Interest under the 1997 Revolving Credit Facility is based on, at the option of the Company, either PNC Bank's prime rate or a floating LIBOR rate plus a spread based on a leverage calculation (specifically, the Consolidated Total Indebtedness to EBITDA Ratio). As of October 31, 1999, the interest rate on borrowings outstanding under the 1997 Revolving Credit Facility was 6.8%. Repayment of funds borrowed under the credit agreement is not required until the expiration of the facility. The most restrictive covenants under the 1997 Revolving Credit Facility include a maximum Consolidated Total Indebtedness to EBITDA Ratio of 3.75 to 1.0, a minimum Interest Coverage Ratio of 3.5 to 1.0 and a minimum Consolidated Tangible Net Worth, all as defined in the 1997 Revolving Credit Facility agreement. The 1997 Revolving Credit Facility agreement, as amended, excludes the Antitrust Charge from EBITDA for both pricing and covenant calculation purposes. The 1997 Revolving Credit Facility is collateralized with receivables, inventory and substantially all of the Company's property, plant and equipment. As of October 31, 1999, the Company had $30.0 million available under the 1997 Revolving Credit Facility. As of October 31, 1999, borrowings totaled $113.2 million and outstanding letters of credit were $6.8 million. Effective December 10, 1999, the Company amended its 1997 Revolving Credit Facility. The amendment temporarily reduces the minimum Interest Coverage Ratio, reduces the minimum Consolidated Tangible Net Worth requirement and temporarily increases the maximum Consolidated Total Indebtedness to EBITDA Ratio to accommodate the expected net losses from operations during the quarters ending January 31, 2000 and April 30, 2000. Interest costs on the 1997 Revolving Credit Facility will be calculated based on a floating LIBOR rate plus 2.25% until the Interest Coverage Ratio increases above 3.50 to 1.0 and the Consolidated Total Indebtedness to EBITDA Ratio decreases below 3.75 to 1.0. Commitments for borrowings under the 1997 Revolving Credit Facility will be reduced from $150 million to $140 million as of January 31, 2000 and the Company will have the option to complete its remaining $4.3 million share repurchase program through the end of fiscal 2000 if it achieves certain debt levels. During fiscal 1998, the Company's Board of Directors authorized the expenditure of up to $10 million to repurchase the Company's Common Stock. Subject to price and market considerations and applicable securities laws, such purchases may be made from time to time in open market, privately negotiated or other transactions. No time limit was placed on the duration of the repurchase program. The extent and timing of any repurchases will depend on market conditions and other corporate considerations, including the Company's liquidity needs. As of October 31, 1999, the Company had repurchased 467,200 shares of Common Stock at a total cost of $5.7 million. CASH FLOW INFORMATION Cash flow used by operations for the quarter ended October 31, 1999 was $0.8 million. Cash inflows from net income plus non-cash items of $5.9 million were offset by net cash outflows from changes in working capital items, including cash outflows of $2.7 million for accounts receivable, $1.7 million for inventory and $9.9 million for trade accounts payable and accrued expenses. Net interest payments during the quarter totaled $1.9 million and the Company received a $6.8 million net income tax refund during the quarter ended October 31, 1999. Investing activities for the quarter ended October 31, 1999 included capital expenditures of $3.1 million. Cash flow provided by financing activities for the quarter ended October 31, 1999 was $3.9 million, including $2.7 million from the 1997 Revolving Credit Facility. 17 19 OTHER ITEMS ENVIRONMENTAL In the process of developing permit applications for facility upgrades at the St. Marys, PA graphite plant, the Company determined that certain parameters in its air permits do not reflect current operations. The Company has advised the appropriate state environmental authorities. The Company is in the process of preparing a proposed plan of action to achieve resolution of this issue. Such plan of action will include the installation and ongoing operation of an air emissions scrubbing unit. A preliminary cost estimate for this unit is approximately $3.0 million installed, plus $0.5 million per year in ongoing cash operating costs. The Company believes that certain costs are subject to reimbursement under an environmental indemnity agreement the Company has with The BOC Group, plc, the predecessor to the Company. It is unclear whether or not the state will levy a fine in connection with this issue. YEAR 2000 COMPLIANCE The Company has modified, upgraded and replaced certain components of its computer software, operating systems and manufacturing process control systems to accommodate the Year 2000 changes required for correct recording of dates in the year 2000 and beyond. The Company has adopted a comprehensive Year 2000 compliance action plan that includes (i) inventorying all of its information technology (IT) systems, manufacturing process control systems and non-IT systems, (ii) assessing these systems and resources for Year 2000 compliance, (iii) remedying and replacing non-compliant systems, (iv) testing upgraded systems for compliance, and (v) developing contingency plans. The Company has substantially completed its Year 2000 compliance program, and, while the Company continues to test and refine its contingency plans, the Company's significant IT and non-IT systems are Year 2000 compliant. The Company does not expect to experience significant operational problems associated with Year 2000 compliance. The Company continues to evaluate the Year 2000 compliance programs of its critical customers, suppliers and service providers in an attempt to determine the adequacy of their programs in addressing the Year 2000 issue. This evaluation includes the distribution of questionnaires to such parties and the development of contingency plans that assume the failure of a third party critical to the Company's business. The Company believes that the most reasonably likely worst-case scenario for the Company with respect to the Year 2000 issue is the failure of a critical vendor, including but not limited to a utility supplier, or the failure of a critical customer, including electric arc furnace steel producers who use a substantial amount of power in their production process. A failure by a critical supplier or group of critical customers could negatively impact sales, profits and cash flows. The Company believes that the formulation of contingency plans will help mitigate exposure and losses should such a failure occur. However, because the Company's overall Year 2000 compliance is contingent upon the readiness of its critical vendors and customers, there can be no assurance that the Company's Year 2000 compliance programs will adequately address Year 2000 issues not under its direct control. FORWARD-LOOKING STATEMENTS This report may contain forward-looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbor created thereby. These statements are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that such statements will prove to be accurate. 18 20 Factors that could affect actual future results include the developments related to the antitrust investigations by the DOJ, the antitrust enforcement authorities of the European Union or related civil lawsuits as well as the assertion of other claims relating to such investigations or lawsuits or the subject matter thereof. While the Company believes that the antitrust reserve is adequate, there can be no assurance that future developments or other factors might not adversely affect current estimates. Such factors also include the possibility that increased demand or prices for the Company's products may not occur or continue, the success of the Company's working capital improvement initiative, changing economic and competitive conditions (including currency exchange rate and commodity pricing fluctuations), technological risks and other risks, costs and delays associated with the start-up and operation of major capital projects (including the Company's modernization program), changing governmental regulations (including environmental rules and regulations) and other risks and uncertainties, including those detailed in this and the Company's other filings with the Securities and Exchange Commission. Neither the statements contained in this report nor any reserve or charge recorded by the Company relating to civil lawsuits or claims shall be deemed to constitute an admission as to any liability in connection with the subject matter thereof. The Company does not undertake to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There have not been any material changes in the Company's exposures to market risk during the quarter ended October 31, 1999 which would require an update to the disclosures provided in the Company's Annual Report on Form 10-K for the fiscal year ended July 31, 1999. 19 21 PART II Item 1 LEGAL PROCEEDINGS In May 1997, the Company was served with a subpoena issued by a Grand Jury empanelled by the United States District Court for the Eastern District of Pennsylvania. The Company was advised by attorneys for the Department of Justice (DOJ) that the Grand Jury is investigating price fixing by producers of graphite products in the United States and abroad during the past five years. The Company is cooperating with the DOJ in the investigation. The DOJ has granted the Company and certain former and present senior executives the opportunity to participate in its Corporate Leniency Program and the Company has entered into an agreement with the DOJ under which the Company and such executives who cooperate will not be subject to criminal prosecution with respect to the investigation if charges are issued by the Grand Jury. Under the agreement, the Company has agreed to use its best efforts to provide for restitution to its domestic customers for actual damages if any conduct of the Company which violated the Federal Antitrust Laws in the manufacture and sale of such graphite products caused damage to such customers. Subsequent to the initiation of the DOJ investigation, four civil cases were filed in the United States District Court for the Eastern District of Pennsylvania in Philadelphia asserting claims on behalf of a class of purchasers for violations of the Sherman Act. These cases, which have been consolidated, name the Company, UCAR International, Inc. (UCAR), SGL Carbon Corporation (SGL Corp.) and SGL Carbon AG (SGL) as defendants (together, the Named Defendants) and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case initiated a separate action in the same District Court which asserts substantially the same claims and seeks the same relief as the consolidated case and names the Named Defendants, as well as Showa Denko Carbon, Inc. (Showa Denko). Thereafter, seven additional groups of purchasers who were previously included in the purported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants, Showa Denko and, in several cases, certain present or former related parties of UCAR and Showa Denko, asserting substantially the same claims and seeking the same relief as in the consolidated case. Four such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, May 14, 1998, May 28, 1998 and March 31, 1999, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998 but has been transferred to the Eastern District of Pennsylvania for pre-trial proceedings. Another action was filed in the United States District Court for the Western District of Pennsylvania on June 17, 1998 but has also been transferred to the Eastern District of Pennsylvania for pre-trial proceedings. The complaints or amended complaints in some of the cases have also named as defendants other companies including Mitsubishi Corporation, Tokai Carbon U.S.A., Inc. and related companies. On December 7, 1998, the Company was served with a complaint filed by Chaparral Steel Company against the Named Defendants, Showa Denko and parties related to Showa Denko and UCAR in state court in Ellis County, Texas alleging violations of various Texas state antitrust laws and seeking treble damages. Chaparral Steel Company has filed an amended complaint adding two additional related plaintiffs and a second amended complaint adding additional defendants Nippon Carbon Co., Ltd., SEC Corporation, Tokai Carbon Company, Ltd., Tokai Carbon USA, Inc., VAW Aktiengesellscheft and VAW Carbon GMBH. The Company has reached settlement agreements representing approximately 96% of domestic antitrust claims with the class plaintiffs and the plaintiffs that filed lawsuits on March 30, 1998, April 3, 1998, April 17, 1998, May 14, 1998, May 28, 1998, June 17, 1998 and March 31, 1999 and other purchasers who had yet to file lawsuits. The settlement agreement with the class has received preliminary approval by the Court but is still subject to final approval. The settlement with the class plaintiffs, which contemplates possible payments to certain foreign purchasers, allows the Company to terminate the settlement if the claims of foreign purchasers who opt out of the class settlement exceed certain levels and allows the class plaintiffs to terminate the settlement agreement if the Company's sales to certain foreign purchasers, as defined in the settlement agreement, exceed certain levels. 20 22 Although various of the settlements are unique, in the aggregate they consist generally of current and deferred cash payments and, in a number of cases, provisions which provide for additional payments under certain circumstances ("most favored nations" provisions). In addition to the settlements discussed above, the Company may also settle with various additional purchasers. On February 10, 1999, a U.S. corporation which allegedly made purchases on behalf of two foreign entities and a group of 22 foreign purchasers which are based in several foreign countries filed a complaint against the Company, UCAR, SGL, Tokai Carbon Co., Ltd., Tokai Carbon U.S.A., Inc., Nippon Carbon Co., Ltd., SEC Corporation and certain present and former related parties of UCAR in United States District Court for the Eastern District of Pennsylvania. This complaint has been amended to add four additional defendants. On September 24, 1999, three Australian companies and one New Zealand company filed a complaint against the same parties as are named in the lawsuit filed on February 10, 1999. These cases assert substantially the same claims and seek the same relief as the consolidated case. Other foreign purchasers have also made similar claims against the Company but have not filed lawsuits. The Company understands that defendants UCAR and Showa Denko have reached settlement agreements with the class action plaintiffs, which have been approved by the court, and have also settled claims brought by various individual purchasers. The Company further understands that UCAR, Robert P. Krass, Robert J. Hart, SGL, Robert J. Koehler, Showa Denko, Tokai, SEC Corporation and Nippon Carbon Co. have agreed to plead or have pleaded guilty to antitrust conspiracy charges filed by the DOJ and have agreed to or been ordered to pay fines and, in the case of Messrs. Krass and Hart, have agreed to serve prison sentences, in connection with those guilty pleas or agreements to plead guilty. The Company has also advised the Commission of the European Communities (the European Commission) that it wishes to invoke its Leniency Notice. Generally under these guidelines, the European Commission may reduce fines and other penalties if a company sufficiently cooperates with the European Commission. The Company understands that the European Commission will determine fines, if any, at the completion of its proceedings. On June 18, 1998, a group of Canadian purchasers filed a lawsuit in the Ontario Court (General Division) claiming a conspiracy and violations of the Canadian Competition Act. The Canadian lawsuit names the Named Defendants and Showa Denko, as well as several present or former parents, subsidiaries and/or affiliates of UCAR, SGL and Showa Denko. The Canadian Competition and Consumer Law Division (Canadian Division) has initiated an inquiry and the Company is cooperating fully with the authorities conducting that inquiry pursuant to an agreement with the Director of Research and Investigation of the Canadian Division under which the Company and its present and former officers, directors and employees will not be subject to criminal prosecution. During fiscal 1998, the Company recorded a $38 million pre-tax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the pending antitrust matters (the Initial Antitrust Charge). During fiscal 1999, the Company recorded an additional $7.0 million charge ($4.5 million after expected tax benefits) for such potential liabilities (the Supplemental Antitrust Charge). The combined $45.0 million charge (the Antitrust Charge) represents the Company's estimate, based on current facts and circumstances, of the expected cost to resolve pending antitrust claims. The Company understands that defendants UCAR and Showa Denko have reached settlements with the class action plaintiffs and various individual purchasers at amounts substantially higher than the levels contemplated in the Antitrust Charge. In light of these and other developments including: (a) possible future settlements with other purchasers and the effect of the possible additional payments ("most favored nations") noted above, (b) the outcome of the European Commission antitrust investigation, (c) potential additional lawsuits by foreign purchasers, (d) the failure to satisfy the conditions to the class action settlement, and (e) adverse rulings or judgments in pending litigation, the antitrust matters could result in aggregate liabilities and costs which could differ materially and adversely from the Antitrust Charge and could affect the Company's financial condition and its ability to service its currently planned liquidity needs. As of October 31, 1999, $25.0 million in antitrust settlements and costs had been paid. 21 23 The Company is also involved in various legal proceedings considered incidental to the conduct of its business or otherwise not material in the judgement of management. Management does not believe that its loss exposure related to these cases is materially greater than amounts provided in the consolidated balance sheet as of October 31, 1999. As of October 31, 1999, a $0.2 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 22 24 PART II Item 6 EXHIBITS AND REPORTS ON FORM 8-K A. INDEX TO EXHIBITS 10.32 Fifth Amendment to the Revolving Credit and Letter of Credit Issuance Agreement among The Carbide/Graphite Group, Inc., the Lenders which are Parties thereto, and PNC Bank, N.A., as the Issuing Bank and as the Agent for the Lenders dated December 10, 1999 27 Financial Data Schedule B. REPORTS ON FORM 8-K During the quarter ended October 31, 1999, the Company filed a Current Report on Form 8-K which reflected the Company's press release reporting the resignation of James G. Baldwin as a director of the Company. 23 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the following authorized officers on December 14, 1999.
SIGNATURE TITLE - ----------------------------------------------------------------------------------------------------------------- /S/ WALTER B. FOWLER CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) - ----------------------------------------------------- (WALTER B. FOWLER) /S/ STEPHEN D. WEAVER VICE PRESIDENT - FINANCE AND CHIEF FINANCIAL OFFICER - ----------------------------------------------------- (PRINCIPAL FINANCIAL OFFICER) (STEPHEN D. WEAVER) /S/ JEFFREY T. JONES CONTROLLER - CORPORATE FINANCE - ----------------------------------------------------- (PRINCIPAL ACCOUNTING OFFICER) (JEFFREY T. JONES) VICE PRESIDENT AND GENERAL MANAGER, /S/ MICHAEL F. SUPON ELECTRODES AND GRAPHITE SPECIALTY PRODUCTS - ----------------------------------------------------- (MICHAEL F. SUPON) VICE PRESIDENT AND GENERAL MANAGER, /S/ ARARAT HACETOGLU CARBIDE PRODUCTS - ----------------------------------------------------- (ARARAT HACETOGLU) VICE PRESIDENT AND GENERAL MANAGER, /S/ JIM J. TRIGG SEADRIFT COKE, L.P. - ----------------------------------------------------- (JIM J. TRIGG)
24 EX-10.32 2 EXHIBIT 10.32 1 Exhibit 10.32 FIFTH AMENDMENT TO REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT This FIFTH AMENDMENT TO REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT is made as of this 10th day of December, 1999 (the "Fifth Amendment") and entered into by and among THE CARBIDE/GRAPHITE GROUP, INC., a corporation organized and existing under the laws of the State of Delaware (the "Borrower"), the financial institutions party thereto as lenders (collectively referred to herein as the "Lenders"), PNC BANK, NATIONAL ASSOCIATION, in its capacity as the issuer of letters of credit (in such capacity, the "L/C Issuer") and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent for the Lenders and the L/C Issuer (in such capacity, the "Agent") and further amends that certain Revolving Credit and Letter of Credit Issuance Agreement dated as of September 25, 1997, as previously amended by that certain First Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of October 28, 1997 (the "First Amendment"), the Second Amendment to Revolving Credit Agreement and Waiver dated as of April 30, 1998 (the "Second Amendment"), the Third Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Amendment to Revolving Credit Notes dated as of April 30, 1999 (the "Third Amendment"), the Fourth Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of September 8, 1999 (the "Fourth Amendment") (the Revolving Credit and Letter of Credit Issuance Agreement, as amended by the First Amendment, the Second Amendment, the Third Amendment, and the Fourth Amendment is hereinafter referred to as the "Original Credit Agreement"). WITNESSETH WHEREAS, due to the implementation of a plan of inventory reduction by the Borrower, the Borrower has requested certain amendments to the terms of the Original Credit Agreement to accommodate such plan; and WHEREAS, the Agent, the Lenders and the L/C Issuer have agreed to make such amendments upon the terms and conditions set forth herein. NOW THEREFORE, in consideration of the foregoing premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and with the intent to be legally bound hereby, the parties hereto agree as follows: ARTICLE I AMENDMENTS TO ORIGINAL CREDIT AGREEMENT SECTION 1.01 AMENDMENTS TO SECTION 1.01 OF THE ORIGINAL CREDIT AGREEMENT. The following defined terms and the definitions therefor are hereby added to Section 1.01 of the Original Credit Agreement and inserted in correct alphabetical order: Commodity Hedge shall mean any contract or arrangement; the purpose or substance of which is to protect the Borrower from the risk of any change in the price of commodities. 2 Fifth Amendment shall mean the Fifth Amendment to Revolving Credit and Letter of Credit Issuance Agreement dated as of the Fifth Amendment Effective Date. Fifth Amendment Effective Date shall mean December 10, 1999. Fifth Amendment Fee shall mean a fee equal to One Hundred Fifty Thousand Dollars ($150,000), payable pro rata, based on each Lender's Commitment, to each Lender who approves the Fifth Amendment on or before December 10, 1999. Foreign Exchange Hedge shall mean any contract or arrangement; the purpose or substance of which is to protect the Borrower from the risk of any change in the price or value of foreign currencies. SECTION 1.02 MODIFICATION OF EXISTING DEFINED TERM. The definition of "Lender Obligations" is amended by adding in subsection (iv) thereof, immediately after the term "Interest Rate Hedge Agreement", the phrase "Foreign Exchange Hedge or Commodity Hedge". SECTION 1.03 MODIFICATION OF EXISTING ORIGINAL CREDIT AGREEMENT. The following Sections of the Original Credit Agreement are amended and restated to read as follows: (i) The penultimate sentence of Section 2.01(a) is amended and restated as follows: The aggregate amount of the Revolving Credit Commitments prior to January 31, 2000 shall be $150,000,000, and on and after that date $140,000,000. (ii) Add at the conclusion of Subsection 2.03 the following additional paragraph. Notwithstanding the foregoing, during the period from the Fifth Amendment Effective Date to and including October 31, 2000, the Applicable Commitment Fee for each Lender's Revolving Credit Commitment shall be 0.375%. Thereafter, so long as, on October 31, 2000, the Borrower's ratio of EBITDA to Cash Interest Expense (determined on the basis of the four most recently completed Fiscal Quarters) is equal to or greater than 3.5 to 1.0, the Applicable Commitment Fee shall be determined in accordance with the above stated grid. If the Borrower does not meet or exceed the ratio set forth in the preceding sentence on October 31, 2000, the Applicable Commitment Fee shall remain at 0.375% until the Fiscal Quarter end when the Borrower achieves such ratio. (iii) Add at the conclusion of Subsection 2.08(b)(ii) the following additional paragraph. Notwithstanding the foregoing, during the period from the Fifth Amendment Effective Date to and including October 31, 2000, the Applicable Euro-Rate Margin on all Revolving Credit Loans outstanding shall be 2.25%. Thereafter, so long as, on October 31, 2000, the Borrower's ratio of EBITDA to Cash Interest Expense (determined on the basis of the four most recently completed Fiscal Quarters) is equal to or greater than 3.5 -2- 3 to 1.0, the Applicable Euro-Rate Margin shall be determined in accordance with the above stated grid. If the Borrower does not meet or exceed the ratio set forth in the preceding sentence on October 31, 2000, the Applicable Euro-Rate Margin shall remain at 2.25% until the Fiscal Quarter end when the Borrower achieves such ratio. (iv) Add at the conclusion of Subsection 2.17(b) the following additional paragraph. Notwithstanding the foregoing, during the period from the Fifth Amendment Effective Date to and including October 31, 2000, the Applicable Letter of Credit Fee for each Letter of Credit shall be 2.25%. Thereafter, so long as, on October 31, 2000, the Borrower's ratio of EBITDA to Cash Interest Expense (determined on the basis of the four most recently completed Fiscal Quarters) is equal to or greater than 3.5 to 1.0, the Applicable Letter of Credit Fee shall be determined in accordance with the above stated grid. If the Borrower does not meet or exceed the ratio set forth in the preceding sentence on October 31, 2000, the Applicable Letter of Credit Fee shall remain at 2.25% until the Fiscal Quarter end when the Borrower achieves such ratio. (v) Section 7.12 shall be amended and restated in its entirety as follows: 7.12. Minimum Consolidated Tangible Net Worth. The Borrower will not at any time (i) after December 10, 1999, through and including January 31, 2000, permit its Consolidated Tangible Net Worth to be less than an amount equal to $76,500,000 (less the amount of any purchases of treasury stock up to $1,300,000 since November 1, 1999); (ii) $75,500,000 (less the amount of any purchases of treasury stock up to $2,600,000 since November 1, 1999) from February 1, 2000, through and including April 30, 2000; and (iii) thereafter the sum of $75,500,000 (less the amount of any purchases of treasury stock up to $4,300,000 between November 1, 1999 and July 31, 2000), plus 50% of the positive net income for each Fiscal Quarter of the Borrower and its Subsidiaries ending after May 1, 2000, and determined on a consolidated basis in accordance with GAAP consistently applied, plus (iv) all increases to equity from the issuance by the Borrower after the Fifth Amendment Effective Date of further equity securities or other equity capital investments. (vi) Section 7.13 shall be amended and restated in its entirety as follows: 7.13. Interest Coverage. The Borrower shall not permit its ratio, measured on a rolling four Fiscal Quarter basis, of EBITDA to Cash Interest Expense as of the end of each Fiscal Quarter to be less than (i) 3.25 to 1.0 as of the Fiscal Quarter ending January 31, 2000, (ii) 2.75 to 1.0 as of the Fiscal Quarter ending April 30, 2000, (iii) 3.0 to 1.0 as of the Fiscal Quarters ending July 31, 2000 and October 31, 2000, (iv) 3.25 to 1.0 as of the Fiscal Quarters ending January 31, 2001 and April 30, 2001, and (v) 3.50 to 1.0 as of the end of each Fiscal Quarter thereafter beginning with the Fiscal Quarter ending July 31, 2001, provided, however, that for purposes of this Section 7.13, the Special Reserve may be included in calculating the Borrower's EBITDA by treating it as an extraordinary or unusual loss pursuant to item (a)(v) of the definition of EBITDA contained in Section 1.01 hereof; and provided further, however, in determining compliance with the above financial ratio as of the Fiscal Quarter ending July 31, 2000, the quarterly results of EBITDA and Cash Interest -3- 4 Expense for such quarter shall be annualized; as of the Fiscal Quarter ending October 31, 2000, the quarterly results for the last two quarters shall be annualized; and as of the Fiscal Quarter ending January 31, 2001, the quarterly results for the last three quarters shall be annualized; and for each Fiscal Quarter ending thereafter compliance shall be determined on a rolling four Fiscal Quarter basis. (vii) Section 7.14 shall be amended and restated in its entirety as follows: 7.14 Leverage Ratio. The Borrower shall not permit its Consolidated Total Indebtedness to EBITDA Ratio during the applicable period or periods set forth below to be greater than the ratio set forth opposite each such period or periods:
- ----------------------------------------------------------------------------------------- CONSOLIDATED TOTAL PERIOD INDEBTEDNESS TO EBITDA RATIO - ----------------------------------------------------------------------------------------- From December 10, 1999 through January 31, 4.50 to 1.0 2000 - ----------------------------------------------------------------------------------------- From February 1, 2000 through April 30, 2000 4.75 to 1.0 - ----------------------------------------------------------------------------------------- From May 1, 2000 through April 29, 2002 3.75 to 1.00 - ----------------------------------------------------------------------------------------- From April 30, 2002 through April 29, 2003 3.50 to 1.00 - ----------------------------------------------------------------------------------------- On and after April 30, 2003 3.00 to 1.00 - -----------------------------------------------------------------------------------------
In determining compliance with this Section 7.14, the Special Reserve may be included in calculating the Borrower's EBITDA by treating it as an extraordinary or unusual loss pursuant to item (a)(v) of the definition of EBITDA contained in Section 1.01 hereof; provided, however, in determining compliance with the above financial ratio as of the Fiscal Quarter ending July 31, 2000, the quarterly results for such quarter shall be annualized; as of the Fiscal Quarter ending October 31, 2000, the quarterly results for the last two quarters shall be annualized; and as of the Fiscal Quarter ending January 31, 2001, the quarterly results for the last three quarters shall be annualized; and for each Fiscal Quarter ending thereafter compliance shall be determined on a rolling four Fiscal Quarter basis. SECTION 1.04 ADDITIONAL SECTION TO EXISTING ORIGINAL CREDIT AGREEMENT. Add an additional Section 7.18 to the Agreement as follows: Section 7.18 Stock Repurchase. From the Fifth Amendment Effective Date to July 31, 2000, the Borrower shall not purchase or repurchase any of the Borrower's equity securities from its shareholders except for, on a non-cumulative basis: (a) $1,300,000 during the Fiscal Quarter ending January 31, 2000; (b) up to $2,600,000 from November 1, 1999 to and including April 30, 2000, but only so long as the Revolving Credit Loan (not including any Letters of -4- 5 Credit outstanding) shall be less than $113,000,000, after taking into account any uses of the Revolving Credit Loan to make such purchases; and (c) up to $4,300,000 from November 1, 1999 to and including July 31, 2000, but only so long as the Revolving Credit Loan (not including any Letters of Credit outstanding) shall be less than $107,000,000, after taking into account any uses of the Revolving Credit Loan to make such purchases. SECTION 1.05 NO OTHER AMENDMENTS. Except as specifically set forth therein, the amendments to the Original Credit Agreement set forth in Sections 1.01 through 1.04 above do not either implicitly or explicitly alter, waive or amend, the provisions of the Original Credit Agreement. The amendments set forth in Sections 1.01 through 1.04 hereof do not waive, now or in the future, compliance with any other covenant, term or condition to be performed or complied with nor do they impair any rights or remedies of the Lenders and the Agents under the Original Credit Agreement with respect to any such violation. ARTICLE II BORROWER'S SUPPLEMENTAL REPRESENTATIONS SECTION 2.01. INCORPORATION BY REFERENCE. As an inducement to the Agent, the Lenders, and the L/C Issuer to enter into this Fifth Amendment, the Borrower hereby repeats herein for the benefit of the Agent, the Lenders, and the L/C Issuer the representations and warranties made by the Borrower in Article IV of the Original Credit Agreement, as amended hereby, except that, for purposes hereof such representations and warranties shall be deemed to extend to and cover this Fifth Amendment. ARTICLE III CONDITIONS PRECEDENT SECTION 3.01 CONDITIONS PRECEDENT. Each of the following shall be a condition precedent to the effectiveness of this Fifth Amendment: (i) The Agent shall have received, on or before the Fifth Amendment Effective Date, the following items, each, unless otherwise indicated, dated on or before the Fifth Amendment Effective Date and in form and substance satisfactory to the Agent and its special counsel, Tucker Arensberg, P.C.: (A) A duly executed counterpart original of this Fifth Amendment executed by the Required Lenders, the Agent and the Borrower; (B) A certificate from the Secretary of the Borrower certifying that the Articles of Incorporation and Bylaws of the Borrower previously delivered to the Agent are true, complete, and correct. (C) Payment of the Fifth Amendment Fee to the Agent for the pro rata benefit of the Lenders who execute this Fifth Amendment on or by December 10, 1999; -5- 6 (D) Such other instruments, documents and opinions of counsel as the Agent shall reasonably require, all of which shall be satisfactory in form and content to the Agent and its special counsel, Tucker Arensberg, P.C. (ii) The following statements shall be true and correct on the Fifth Amendment Effective Date and the Agent shall have received a certificate signed by an Authorized Officer of the Borrower, dated the Fifth Amendment Effective Date, stating that: (A) the representations and warranties made pursuant to Section 2.01 of this Fifth Amendment and in the other Loan Documents, as amended hereby, are true and correct on and as of the Fifth Amendment Effective Date as though made on and as of such date; (B) no petition by or against the Borrower has at any time been filed under the United States Bankruptcy Code or under any similar act; (C) taking into account the amendments set forth in this Fifth Amendment, no Event of Default or event which with the giving of notice, the passage of time or both would become an Event of Default has occurred and is continuing, or would result from the execution of or performance under this Fifth Amendment; (D) taking into account the amendments set forth in this Fifth Amendment, no Material Adverse Change has occurred which has not been disclosed to the Agent and the Lenders; and (E) taking into account the amendments set forth in this Fifth Amendment, the Borrower has in all material respects performed all agreements, covenants and conditions required to be performed on or prior to the date hereof under the Original Credit Agreement and the other Loan Documents. ARTICLE IV GENERAL PROVISIONS SECTION 4.01 RATIFICATION OF TERMS. Except as expressly amended by this Fifth Amendment, the Original Credit Agreement and each and every representation, warranty, covenant, term and condition contained therein is specifically ratified and confirmed. The Borrower hereby confirms that any collateral for the Lender Obligations, including but not limited to encumbrances, Liens, security interests, mortgages and pledges granted by the Borrower or third parties, shall continue unimpaired and in full force and effect. THE BORROWER EXPRESSLY RATIFIES AND CONFIRMS THE WAIVER OF JURY TRIAL PROVISION CONTAINED IN THE ORIGINAL CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 4.02 REFERENCES. All notices, communications, agreements, certificates, documents or other instruments executed and delivered after the execution and delivery of this Fifth Amendment in connection with the Original Credit Agreement, any of the other Loan Documents or the transactions contemplated thereby may refer to the Original Credit Agreement without making specific reference to this Fifth Amendment, but nevertheless all such references shall include this Fifth Amendment unless the context requires otherwise. From and after the Amendment Effective Date, all references in the Original Credit Agreement and each -6- 7 of the other Loan Documents to the "Agreement" shall be deemed to be references to the Original Credit Agreement as amended hereby. SECTION 4.03 INCORPORATION INTO ORIGINAL CREDIT AGREEMENT. This Fifth Amendment is deemed incorporated into the Original Credit Agreement. To the extent that any term or provision of this Fifth Amendment is or may be deemed expressly inconsistent with any term or provision of the Original Credit Agreement, the terms and provisions hereof shall control. SECTION 4.04 COUNTERPARTS. This Fifth Amendment may be executed in different counterparts, each of which when executed by the Borrower and the Agent, the Lenders, and the L/C Issuer shall be regarded as an original, and all such counterparts shall constitute one Fifth Amendment. SECTION 4.05 CAPITALIZED TERMS. Except for proper nouns and as otherwise defined herein, capitalized terms used herein as defined terms shall have the same meanings herein as are ascribed to them in the Original Credit Agreement, as amended hereby. SECTION 4.06 TAXES. The Borrower shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Fifth Amendment and such other documents and instruments as are delivered in connection herewith and agrees to save the Agent, the Lenders, and the L/C Issuer harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 4.04 COSTS AND EXPENSES. The Borrower will pay all costs and expenses of the Agent (including, without limitation, the reasonable fees and the disbursements of the Agent's special counsel, Tucker Arensberg, P.C.) in connection with the preparation, execution and delivery of this Fifth Amendment and the other documents, instruments and certificates delivered in connection herewith. SECTION 4.08 GOVERNING LAW. THIS FIFTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA WITHOUT REGARD TO THE PROVISIONS THEREOF REGARDING CONFLICTS OF LAW. SECTION 4.09 HEADINGS. The headings of the sections in this Fifth Amendment are for purposes of reference only and shall not be deemed to be a part hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -7- 8 IN WITNESS WHEREOF, the parties hereto, with the intent to be legally bound hereby, have caused this Fifth Amendment to Revolving Credit and Letter of Credit Issuance Agreement to be duly executed by their respective proper and duly authorized officers as a document under seal, as of the day and year first above written. ATTEST: BORROWER: THE CARBIDE/GRAPHITE GROUP, INC., a Delaware corporation /s/ William M. Thalman By /s/ Stephen D. Weaver (SEAL) Name: William M. Thalman Name: Stephen D. Weaver Title: Treasurer Title: VP-Finance and CFO AGENT AND L/C ISSUER: PNC BANK, NATIONAL ASSOCIATION By /s/ Mark W. Rutherford (SEAL) Name: Mark W. Rutherford Title: Senior Vice President LENDERS: REVOLVING CREDIT PNC BANK, NATIONAL ASSOCIATION COMMITMENT: $26,000,000.00 RATABLE SHARE: 17.33% By /s/ Mark W. Rutherford (SEAL) Name: Mark W. Rutherford Title: Senior Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] -8- 9 REVOLVING CREDIT NATIONAL CITY BANK OF COMMITMENT: $18,000,000.00 PENNSYLVANIA RATABLE SHARE: 12% By /s/ William S. Harris (SEAL) Name: William S. Harris Title: Vice President REVOLVING CREDIT THE FIRST NATIONAL BANK OF COMMITMENT: $13,000,000.00 CHICAGO RATABLE SHARE: 8.66% By /s/ William J. McCaffrey (SEAL) Name: William J. McCaffrey Title: First Vice President REVOLVING CREDIT FIRST UNION NATIONAL BANK COMMITMENT: $18,000,000.00 RATABLE SHARE: 12% By______________________(SEAL) Name: Title: REVOLVING CREDIT KEYBANK, NATIONAL ASSOCIATION COMMITMENT: $13,000,000.00 RATABLE SHARE: 8.66% By /s/ Francis W. Lutz, Jr. (SEAL) Name: Francis W. Lutz, Jr. Title: Portfolio Officer REVOLVING CREDIT STANDARD CHARTERED BANK COMMITMENT: $13,000,000.00 RATABLE SHARE: 8.66% By /s/ Joseph Langlois (SEAL) Name: Joseph Langlois Title: Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] -9- 10 REVOLVING CREDIT MELLON BANK, N.A. COMMITMENT: $13,000,000.00 RATABLE SHARE: 8.66% By /s/ Robert J. Reichenbach (SEAL) Name: Robert J. Reichenbach Title: Assistant Vice President REVOLVING CREDIT BANK OF AMERICA, N.A. COMMITMENT: $18,000,000.00 RATABLE SHARE: 12% By__________________________(SEAL) Name: Title: REVOLVING CREDIT THE CHASE MANHATTAN BANK COMMITMENT: $18,000,000.00 RATABLE SHARE: 12% By /s/ John Malone (SEAL) Name: John Malone Title: Vice President -10- EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUL-31-2000 AUG-01-1999 OCT-31-1999 0 0 41,411 (736) 75,333 133,376 340,966 (212,453) 270,202 52,862 113,200 0 0 99 82,110 270,202 51,123 51,123 44,703 47,653 0 30 2,092 1,348 456 892 0 0 0 892 0.11 0.11
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