-----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, R8XSCKMpfKM9OPpbo9pPtbhiOCcqWbJF5qW+8UhOcltwIiuefZXutwhMbWh060kA V8aEXkfiYJsQdo71dVWVtQ== 0000888918-98-000012.txt : 19980616 0000888918-98-000012.hdr.sgml : 19980616 ACCESSION NUMBER: 0000888918-98-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980430 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARBIDE GRAPHITE GROUP INC /DE/ CENTRAL INDEX KEY: 0000888918 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRICAL INDUSTRIAL APPARATUS [3620] IRS NUMBER: 251575609 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20490 FILM NUMBER: 98648124 BUSINESS ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4125623700 MAIL ADDRESS: STREET 1: ONE GATEWAY CTR STREET 2: 19TH FL CITY: PITTSBURGH STATE: PA ZIP: 15222 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------------- FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number -- 0-20490 ------------------------------- THE CARBIDE/GRAPHITE GROUP, INC. (Exact Name of Registrant as Specified in Charter) Delaware 25-1575609 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Code) One Gateway Center, 19th Floor Pittsburgh, PA 15222 (412) 562-3700 (Address, including zip code, and telephone number, including area code, of principle executive offices) - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of the close of business on June 12, 1998, there were 8,734,042 shares of the Registrant's $0.01 par value common stock outstanding. THE CARBIDE/GRAPHITE GROUP, INC. INDEX TO FORM 10-Q ITEM DESCRIPTION PAGE - ------------ ---------------------------------------------------- --------- PART I 1 Index to Financial Statements ....................... 2 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ............ 12 PART II 1 Legal Proceedings ................................... 18 2 Changes in Securities ............................... 19 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 ........... 19 Signatures .......................................... 20 ------------------ * Item not applicable to the Registrant for this filing on Form 10-Q. 1 PART I Item 1 INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PAGE ---------- Condensed Consolidated Balance Sheets as of April 30, 1998 and July 31, 1997 ......................... 3 Unaudited Consolidated Statements of Operations for the Quarters and Nine Months Ended April 30, 1998 and 1997 . 4 Unaudited Consolidated Statement of Stockholders' Equity for the Nine Months Ended April 30, 1998 ....................... 5 Unaudited Consolidated Statements of Cash Flows for the Quarters and Nine Months Ended April 30, 1998 and 1997 . 6 Footnotes to Unaudited Condensed Consolidated Financial Statements .. 7 2 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS as of April 30, 1998 and July 31, 1997 (in thousands, except share information)
April 30, July 31, 1998 1997 * --------------- ---------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ................................................ - $7,935 Short-term investments .................................................. - 15,912 Accounts receivable -- trade, net of allowance for doubtful accounts: $2,030 at April 30 and $2,029 at July 31 .................. $47,424 49,088 Inventories (Note 2) ..................................................... 61,711 59,445 Income taxes receivable .................................................. 3,645 - Other current assets ..................................................... 10,956 10,956 --------------- ---------------- Total current assets ................................................. 123,736 143,336 Property, plant and equipment, net ........................................... 133,646 87,653 Deferred income taxes ........................................................ 3,217 - Other assets ................................................................. 4,612 4,871 --------------- ---------------- Total assets ....................................................... $265,211 $235,860 =============== ================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable ................................................... $15,678 $21,036 Overdrafts ............................................................... 5,427 - Interest ................................................................. 196 3,835 Antitrust claims reserve (Note 5) ........................................ 37,209 - Other current liabilities ................................................ 17,059 17,640 --------------- ---------------- Total current liabilities ............................................ 75,569 42,511 Long-term debt (Note 4) ...................................................... 97,782 80,035 Deferred income taxes ........................................................ - 7,161 Other liabilities ............................................................ 10,730 9,944 --------------- ---------------- Total liabilities .................................................. 184,081 139,651 --------------- ---------------- Stockholders' equity: Common stock, $0.01 par value; 18,000,000 shares authorized; shares issued: 9,871,042 at April 30 and 9,752,272 at July 31; shares outstanding: 8,734,042 at April 30 and 8,632,272 at July 31 .......... 99 97 Additional paid-in capital ............................................... 35,958 34,163 Retained earnings ....................................................... 50,448 66,683 Other stockholders' equity items ........................................ (5,375) (4,734) --------------- ---------------- Total stockholders' equity ....................................... 81,130 96,209 --------------- ---------------- Total stockholders' equity ...................................... $265,211 $235,860 =============== ================
* Condensed from audited fiscal 1997 balance sheet. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 3 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS for the quarters and nine months ended April 30, 1998 and 1997 (in thousands, except share and per share data)
Quarter Ended April 30, Nine Months Ended April 30, ------------------------------ --------------------------------- 1998 1997 1998 1997 ------------- ------------- ---------------- -------------- (Unaudited) (Unaudited) Net sales ........................................ $72,771 $74,923 $220,979 $217,720 Operating costs and expenses: Cost of goods sold ........................... 62,045 60,644 181,674 178,371 Selling, general and administrative .......... 3,696 3,417 11,325 10,845 Other compensation (Note 6) .................. 150 318 657 1,232 Early retirement/severance charges (Note 6) - 1,100 - 1,100 Other expenses (Note 5) ...................... 38,000 - 38,000 - ------------- ------------- ---------------- -------------- Operating income (loss) .................. (31,120) 9,444 (10,677) 26,172 Other costs and expenses: Interest expense (Note 4) .................... 1,155 1,902 3,780 6,099 ------------- ------------- ---------------- -------------- Income (loss) before income taxes and extraordinary loss ..................... (32,275) 7,542 (14,457) 20,073 Provision for (benefit from) taxes on income (Note 3) ....................... (10,966) 2,794 (4,639) 7,181 ------------- ------------- ---------------- -------------- Income (loss) before extraordinary loss .. (21,309) 4,748 (9,818) 12,892 Extraordinary loss on early extinguishment of debt, net of $3,769 tax benefit ................ - - (6,417) - ------------- ------------- ---------------- -------------- Net income (loss) .................... ($21,309) $4,748 ($16,235) $12,892 ============= ============= ================ ============== Earnings per share information (Note 1): Weighted average common shares outstanding .................................... 8,722,695 8,606,439 8,694,580 8,478,605 ------------- ------------- ---------------- -------------- Weighted average common and common equivalent shares outstanding .................. - 8,824,924 - 8,806,969 ------------- ------------- ---------------- -------------- Income (loss) before extraordinary loss: Basic ....................................... ($2.44) $0.55 ($1.13) $1.52 Diluted ..................................... ($2.44) $0.54 ($1.13) $1.46 Extraordinary loss on early extinguishment of debt: Basic ....................................... - - (0.74) - Diluted ..................................... - - (0.74) - ------------- ------------- ---------------- -------------- Net income (loss): Basic ....................................... ($2.44) $0.55 ($1.87) $1.52 ============= ============= ================ ============== Diluted ..................................... ($2.44) $0.54 ($1.87) $1.46 ============= ============= ================ ==============
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 4 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY for the nine months ended April 30, 1998 (in thousands, except share amounts)
Common Stock Additional --------------------------- Paid-In Retained Other Stockholders' Shares Amount Capital Earnings Equity Items ------------- ----------- ------------- ------------ --------------------- Balance at July 31, 1997 *...... 9,752,272 $97 $34,163 $66,683 $(4,734) Net loss ....................... - - - (16,235) - Exercise of stock options ...... 118,770 2 1,795 - (59) Purchase of treasury stock ..... - - - - (582) ------------- ----------- ------------- ------------ --------------------- Balance at April 30, 1998 (Unaudited) ............. 9,871,042 $99 $35,958 $50,448 ($5,375) ============= =========== ============= ============ =====================
- ------------------ * Condensed from audited fiscal year 1997 statement of stockholders' equity. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 5 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS for the quarters and nine months ended April 30, 1998 and 1997 (in thousands)
Quarter Ended April 30, Nine Months Ended April 30, ---------------------------- --------------------------------- 1998 1997 1998 1997 ------------- ------------ --------------- --------------- (Unaudited) (Unaudited) Net income (loss) ........................................ ($21,309) $4,748 ($16,235) $12,892 Adjustments for noncash transactions: Depreciation and amortization .......................... 3,356 2,712 9,733 7,831 Amortization of debt issuance costs .................... 54 85 153 257 Amortization of intangible assets ...................... 91 79 270 240 Deferred revenue ....................................... (33) (34) (101) (101) Stock option compensation .............................. - 7 - 47 Adjustments to deferred taxes .......................... (10,399) 80 (10,378) (530) Provision for loss - accounts receivable ............... - 30 - 90 Extraordinary loss on early extinguishment of debt ...... - - 10,186 - Increase (decrease) in cash from changes in: Accounts receivable .................................... 3,303 1,690 1,664 (4,068) Inventories ............................................ 3,175 (4,250) (2,266) (1,078) Income taxes ........................................... (4,490) (1,017) (4,255) 552 Other current assets ................................... 311 (803) 897 1,016 Accounts payable and accrued expenses .................. 33,557 2,649 28,241 (743) Net change in other non-current assets and liabilities ............................... 234 133 164 447 ------------- ------------ --------------- --------------- Net cash provided by operations .................... 7,850 6,109 18,073 16,852 ------------- ------------ --------------- --------------- Investing activities: Capital expenditures ................................... (20,710) (8,336) (55,959) (19,310) Proceeds from (purchase of) short-term investments ...... - - 15,750 (5,409) ------------- ------------ --------------- --------------- Net cash used for investing activities ............. (20,710) (8,336) (40,209) (24,719) ------------- ------------ --------------- --------------- Financing activities: Repurchase of Senior Notes, including premium of $8,077 .................................... - - (88,030) - Proceeds from revolving credit facility ................ 41,700 - 153,750 - Repayment on revolving credit facility ................. (26,950) - (56,050) - Other .................................................. (1,890) 119 4,531 354 ------------- ------------ --------------- --------------- Net cash provided by financing activities .......... 12,860 119 14,201 354 ------------- ------------ --------------- --------------- Net change in cash and cash equivalents .................. - (2,108) (7,935) (7,513) Cash and cash equivalents, beginning of period ........... - 11,181 7,935 16,586 ------------- ------------ --------------- --------------- Cash and cash equivalents, end of period ................. - $9,073 - $9,073 ============= ============ =============== ===============
The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 6 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The Carbide/Graphite Group, Inc. and Subsidiaries herein are referenced as the "Company." The Company's current fiscal year ends July 31, 1998. 1. Summary of Significant Accounting Policies: Interim Accounting The Company's Annual Report to Stockholders and Form 10-K for the fiscal year ended July 31, 1997 include additional information about the Company, its operations and its consolidated financial statements and contains a summary of significant accounting policies followed by the Company in preparation of its consolidated financial statements and should be read in conjunction with this quarterly report on Form 10-Q. Unless otherwise noted below, these policies were also followed in preparing the Unaudited Condensed Consolidated Financial Statements included herein. The 1997 year-end consolidated balance sheet data contained herein was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments which are of a normal and recurring nature necessary for a fair statement of the results of operations of these interim periods have been included. Net loss for the nine months ended April 30, 1998 is not necessarily indicative of the results to be expected for the full fiscal year. The Management Discussion and Analysis which follows these notes contains additional information on the results of operations and financial position of the Company. These comments should be read in conjunction with these financial statements. Earnings per Share The Company adopted Statement of Financial Accounting Standards (SFAS) #128,"Earnings per Share" (SFAS #128) during its fiscal second quarter ended January 31, 1998. SFAS #128 requires the presentation of "basic" and "diluted" earnings per share. Under SFAS #128, basic earnings per share is computed utilizing only the weighted average common shares outstanding during the relevant period. Diluted earnings per share is computed utilizing both the weighted average shares and common stock equivalents outstanding during the period to the extent such common stock equivalents have a dilutive effect. Prior year amounts have been restated to conform with the requirements of SFAS #128. The following tables provide a reconciliation of the income and share amounts for the basic and diluted earnings per share computations for income from continuing operations for the quarters and nine months ended April 30, 1998 and 1997 (dollar amounts in thousands):
For the quarters ended April 30, ------------------------------------------------------------------------------------ 1998 1997 --------------------------------------- --------------------------------------- Per Per Income Share Income Share (Loss) Shares Amount (Loss) Shares Amount ----------- ------------- --------- ----------- ------------- --------- Basic earnings per share....... ($21,309) 8,722,695 ($2.44) $4,748 8,606,439 $0.55 ========= ========= Effect of dilutive securities: Options for common stock..... - - - 218,485 ----------- ------------- ----------- ------------- Diluted earnings per share .... ($21,309) 8,722,695 ($2.44) $4,748 8,824,924 $0.54 =========== ============= ========= =========== ============= =========
7 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued
For the nine months ended April 30, ------------------------------------------------------------------------------------ 1998 1997 --------------------------------------- --------------------------------------- Per Per Income Share Income Share (Loss) Shares Amount (Loss) Shares Amount ----------- ------------- --------- ----------- ------------- --------- Basic earnings per share....... ($9,818) 8,694,580 ($1.13) $12,892 8,478,605 $1.52 ========= ========= Effect of dilutive securities: Options for common stock..... - - - 328,364 ----------- ------------- ----------- ------------- Diluted earnings per share .... ($9,818) 8,694,580 ($1.13) $12,892 8,806,969 $1.46 =========== ============= ========= =========== ============= =========
Since the Company's results were a net loss from continuing operations for the quarter and nine months ended April 30, 1998, common equivalent shares were excluded from the diluted earnings per share computations for those periods as their effect would have been anti-dilutive. Recently Issued Accounting Pronouncements The Financial Accounting Standards Board has recently issued SFAS #130, "Reporting Comprehensive Income", SFAS #131,"Disclosure about Segments of an Enterprise and Related Information" and SFAS #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company is required to adopt these new reporting standards for its fiscal year ending July 31, 1999. The Company is evaluating the effects on disclosure of these new reporting standards. 2. Inventories: Inventories consisted of the following (in thousands): April 30, July 31, 1998 1997 ----------------- ------------------ Finished goods .................... $13,007 $13,990 Work in process ................... 34,846 33,074 Raw materials ..................... 14,607 11,256 ----------------- ------------------ 62,460 58,320 LIFO reserve ...................... (11,997) (9,434) ----------------- ------------------ 50,463 48,886 Supplies .......................... 11,248 10,559 ----------------- ------------------ $61,711 $59,445 ================= ================== 8 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued 3. Income Taxes: The provision for (benefit from) income taxes for the quarters and nine months ended April 30, 1998 and 1997 are summarized by the following effective tax rate reconciliations:
Quarter Ended Nine Months Ended April 30, April 30, -------------------------- -------------------------- 1998 1997 1998 1997 ---------- ----------- ----------- ---------- Federal statutory tax rate ....................... (35.0)% 35.0% (35.0)% 35.0% Effect of: State taxes, net of federal benefit ......... 1.4 1.8 1.4 1.8 Foreign sales corporation benefit ........... (1.6) (2.8) (1.6) (2.8) Prior year adjustments ...................... - 1.7 - 0.6 Other ....................................... 1.2 1.3 3.1 1.2 ---------- ----------- ----------- ---------- Effective tax rate ........................ (34.0)% 37.0% (32.1)% 35.8% ========== =========== =========== ==========
The income tax benefits for the quarter and nine months ended April 30, 1998 were recorded based on the Company's projected effective income tax rate for the fiscal year ending July 31, 1998. All federal tax returns prior to fiscal 1995 have been settled with the Internal Revenue Service. Management does not believe that the settlement of its open tax years will have a material adverse effect on the Company's future operating results. 4. Long-Term Debt: On September 26, 1997, the Company completed a tender offer for essentially all ($79.9 million) of its 11.5% Senior Notes due 2003 (the Senior Notes) (the Tender). The tender price paid to holders of the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders received an additional $15.00 per $1,000 in Senior Note principal in exchange for their consent to eliminate substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture other than the covenants to pay interest on and principal of the Senior Notes and the default provisions related to such covenants. Consents were received by holders of more than a majority of the outstanding Senior Notes, resulting in the elimination of such restrictive covenants and default provisions. After the Tender, $0.1 million in Senior Notes were outstanding. In connection with the Tender, the Company entered into an agreement with a consortium of banks led by PNC Bank for a five year, $150 million revolving credit facility with a $15 million sub-limit for standby letters of credit (the 1997 Revolving Credit Facility, as amended). The 1997 Revolving Credit Facility replaces a $25 million revolving credit facility with PNC Bank entered into on December 1, 1995 (the 1995 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 (currently 0.625%) based on a leverage calculation (specifically, the Consolidated Total Indebtedness to EBITDA Ratio). As of April 30, 1998, the interest rate on borrowings outstanding under the 1997 Revolving Credit Facility was 6.4%. Repayment of funds borrowed under the new credit agreement are not required until the expiration of the facility on September 25, 2002. The most restrictive covenants under the 1997 Revolving Credit Facility include a minimum Interest Coverage Ratio of 3.5 to 1.0, a maximum Consolidated Total Indebtedness to EBITDA Ratio of 3.0 to 1.0 and a minimum Consolidated Tangible Net Worth ratio, all as defined in the 1997 Revolving Credit Facility agreement. In April 9 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued 1998, the 1997 Revolving Credit Facility was amended to incorporate a $38 million pre-tax charge ($25 million after expected tax benefits) for pending antitrust claims (See Note 5 below). The financial covenants in the 1997 Revolving Credit Facility agreement were generally amended to exclude the effects of this provision and reserve. The 1997 Revolving Credit Facility is collateralized with receivables and inventory. As a result of the Tender and revolving credit facility refinancing, the Company recorded a $6.4 million net extraordinary loss on the early retirement of debt during the nine months ended April 30, 1998. This extraordinary charge represents the premium paid to Senior Note holders in connection with the Tender and the write off of unamortized deferred financing fees associated with the Senior Notes tendered and the 1995 Revolving Credit Facility. 5. 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 Antitrust Division of the United States Department of Justice (the 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., SGL Carbon Corporation and SGL Carbon AG as defendants and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the proported 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 cases and names the same defendants as well as Showa Denko Carbon, Inc. (the "Named Defendants"). Thereafter, four additional purchasers and a related party of one purchaser who were previously included in the proported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants and, in several cases, certain present or former related parties of UCAR International, Inc. asserting substantially the same claims and seeking the same relief as in the consolidated cases. Three such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, April 17, 1998 and May 14, 1998, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998; the Company is seeking to transfer this action to the Eastern District of Pennsylvania. The Company has also advised the Commission of the European Communities (the "Commission") that it wishes to invoke its Notice on the non-imposition or reduction of fines in cartel cases (the Leniency Notice). Generally under these Guidelines, the Commission may substantially reduce fines and other penalties if a company cooperates with the Commission and in the judgment of the Commission provides significant information. The Company understands that the Commission will determine any fines at the completion of its proceedings which may not be concluded for a year or more. 10 THE CARBIDE/GRAPHITE GROUP, INC. AND SUBSIDIARIES FOOTNOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Continued During the quarter ended April 30, 1998, the Company recorded a $38 million pretax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the antitrust matters noted above and the investigations initiated by the antitrust enforcement authorities of the European Union (the Antitrust Charge). The Antitrust Charge includes amounts which may be paid in 1998 and beyond, including through settlements with customers, fines and other costs. Based on the information available to it to date, the Company believes that Antitrust Charge is sufficient to address the resolution of the civil suits and other claims and costs associated with the antitrust investigations. In addition, the Company believes that its cash flows from operations and availability under the 1997 Revolving Credit Facility will be sufficient to fund all of its planned liquidity needs, including the resolution of the antitrust matters described above, through at least the expiration of the 1997 Revolving Credit Facility in September 2002. However, circumstances could change and the actual liabilities, costs and expenses resulting from the antitrust matters (including the Commission antitrust investigation) could differ materially from the current estimate which could adversely affect the Company's ability to service its currently planned liquidity needs. In April 1995, the Company was named as a third-party defendant in a Superfund action in Federal District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, pursuant to the Asset Purchase Agreement by which the Company acquired its operating assets from The BOC Group, plc. (BOC), BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and agreed to indemnify the Company for losses associated therewith in accordance with the terms of the Asset Purchase Agreement. In addition, BOC asserts that the liability in this matter was settled by a 1992 agreement with the plaintiffs in the present case. As a result of a motion for summary judgment, the Court has substantially reduced the scope of claims which may be brought against the Company. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. The Company is also involved in various legal proceedings considered incidental to the conduct of its business, the ultimate disposition of which, in the opinion of the Company's management, will not have a material adverse effect on the financial position, fiscal year operating results, cash flows or business of the Company. Claims (other than environmental and contract claims and claims for punitive damages) against the Company are generally covered by insurance which includes a $250,000 per occurrence self-insured retention. As of April 30, 1998, a $0.4 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. 6. Other Items: Other Compensation Other compensation for the quarter and nine months ended April 30, 1998 included $0.2 million and $0.7 million, respectively, accrued under the Company's Incentive Bonus Plan. Early Retirement/Severance Charge Early retirement/severance charges for the quarter and nine months ended April 30, 1997 represent costs associated with the retirement of two executives of the Company. 11 PART I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The following table sets forth certain financial information for the quarters and nine months ended April 30, 1998 and 1997 and should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements, including the notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q:
Quarter Ended Nine Months Ended April 30, April 30, ---------------------------- --------------------------------- 1998 1997 1998 1997 ------------ ------------ -------------- --------------- (Unaudited) (Unaudited) Net sales: Graphite electrode products .............. $52,622 $54,543 $161,928 $157,816 Calcium carbide products ................. 20,149 20,380 59,051 59,904 ------------ ------------ -------------- --------------- Total net sales .................... $72,771 $74,923 $220,979 $217,720 ============ ============ ============== =============== Percentage of net sales: Graphite electrode products .............. 72.3% 72.8% 73.3% 72.5% Calcium carbide products ................. 27.7 27.2 26.7 27.5 ------------ ------------ -------------- --------------- Total net sales .................... 100.0% 100.0% 100.0% 100.0% ============ ============ ============== =============== Gross profit as a percentage of segment net sales: Graphite electrode products .............. 13.9% 19.7% 18.2% 19.0% Calcium carbide products ................. 16.8 17.4 16.6 15.5 Percentage of total net sales: Total gross profit ....................... 14.7% 19.1% 17.8% 18.1% Selling, general and administrative ...... 5.1 4.6 5.1 5.0 Operating income (loss) .................. (42.8) 12.6 (4.8) 12.0 Income (loss) from continuing operations .. (29.3) 6.3 (4.4) 5.9
------------------ Net sales for the quarter ended April 30, 1998 were $72.8 million versus $74.9 million in the prior year comparable quarter. Graphite electrode product sales for the quarter ended April 30, 1998 were $52.6 million versus $54.5 million in the prior year comparable quarter, while calcium carbide product sales were $20.1 million versus $20.4 million in the prior year comparable quarter. Net sales for the nine months ended April 30, 1998 were $221.0 million versus $217.7 million in the prior year comparable period, a 1.5% increase. For the nine months ended April 30, 1998, graphite electrode product sales increased 2.6% to $161.9 million, while calcium carbide product sales decreased 1.4% to $59.1 million. Within the graphite electrode products segment, graphite electrode net sales for the quarter ended April 30, 1998 were $40.2 million, a 9.6% increase over the prior year comparable quarter as a result of a 9.1% increase in shipments. Net prices of graphite electrodes for the quarter ended April 30, 1998 were essentially unchanged versus the comparable quarter a year ago. A 2.8% increase in domestic electrode prices was offset by a 4.8% decrease in realized foreign electrode prices. The continued strengthening of the U.S. dollar against foreign currencies resulted in the decrease in realized foreign prices. Domestic and foreign electrode shipments 12 as a percentage of total electrode shipments for the quarter ended April 30, 1998 were 56.8% and 43.2%, respectively, versus 54.3% and 45.7%, respectively, for the prior year comparable quarter. Needle coke sales for the quarter ended April 30, 1998 were $6.0 million versus $8.6 million in the prior year comparable quarter, with the decrease resulting from a 33.7% decrease in shipments. The decrease in needle coke shipments was due to lower production resulting from an extended plant shutdown to install and start-up new equipment at the Company's affiliate, Seadrift Coke, L.P. The project, which was substantially completed in April, 1998, increased the plant's needle coke production capacity to approximately 170,000 tons per year. The net price of needle coke increased 6.5% during the quarter ended April 30, 1998 as compared to a year ago. Graphite specialty product sales for the quarter ended April 30, 1998 totaled $6.3 million versus $9.3 million a year ago. The decrease was principally the result of the expiration of a supply agreement with SGL Carbon Corporation (SGL Corp.) under which the Company sold large graphite rods and plates and other processing services to SGL Corp. at cost for a period of three years (the SGL Supply Agreement). The contract expired in January 1998. For the nine months ended April 30, 1998, graphite electrode sales were $121.5 million, a 10.0% increase over the prior year comparable period resulting principally from a 9.1% increase in shipments. Net selling prices for graphite electrodes during the nine months ended April 30, 1998 were essentially unchanged as compared to a year ago. While the average domestic net price increased 5.8%, foreign price realizations were down 5.5% due to the relatively stronger U.S. dollar during the current period. Domestic and foreign electrode shipments as a percentage of total electrode shipments for the nine months ended April 30, 1998 were 54.2% and 45.8%, respectively, versus 51.8% and 48.2%, respectively, in the prior year comparable period. Needle coke sales for the nine months ended April 30, 1998 were $24.3 million versus $20.7 million in the prior year comparable period. The increase in needle coke sales was due to a 11.1% increase in needle coke shipments, despite the lower production and shipments in the fiscal 1998 third quarter, and a 5.7% increase in needle coke prices. Graphite specialty product sales for the nine months ended April 30, 1998 were $16.1 million versus $26.7 million in the prior year comparable period, with the decrease resulting from the winding down of the SGL Supply Agreement. Within the calcium carbide product segment, pipeline acetylene sales for the quarter ended April 30, 1998 were $7.3 million versus $7.1 million in the prior year comparable quarter, a 3.3% increase resulting from increased acetylene deliveries. Desulfurization sales of $5.9 million represented a 3.4% decrease from a year ago resulting primarily from decreased shipments. Sales of calcium carbide for fuel gas applications were $5.1 million, a 7.5% decrease from a year ago resulting primarily from a decrease in shipments. Net sales of calcium carbide for fuel gas applications are expected to continue at lower levels as a result of increasing competition in this product line. Sales in all other product categories totaled $1.8 million, essentially unchanged as compared to a year ago. For the nine months ended April 30, 1998, pipeline acetylene sales were $22.2 million versus $20.4 million for the comparable period a year ago, a 9.0% increase resulting primarily from an increase in acetylene deliveries. Desulfurization sales of $18.1 million represented a 3.7% decrease from a year ago due to decreased shipments. Sales of calcium carbide for fuel gas applications for the nine months ended April 30, 1998 were $15.0 million, a 6.0% decrease from a year ago resulting primarily from a decrease in shipments. All other calcium carbide product sales for the nine months ended April 30, 1998 totaled $3.7 million, a 27.9% decrease from the comparable prior year period resulting primarily from a decrease in shipments of electrically calcined anthracite coal. Gross profit as a percentage of graphite electrode product sales for the quarter ended April 30, 1998 was 13.9% versus 19.7% in the prior year comparable quarter. Gross profit as a percentage of graphite electrode product sales for the nine months ended April 30, 1998 was 18.2% versus 19.0% in the prior year comparable period. The decrease in the gross margins for both periods resulted primarily from the disruption in production and lower sales of needle coke which resulted from the extended plant shutdown to install and start-up new equipment at the Company's affiliate, Seadrift Coke, L.P. The negative impact from the extended shutdown more than offset the 13 benefits of increased needle coke sales volumes during the current nine-month period and improved needle coke prices during both the quarter and nine months ended April 30, 1998. Also, the cost of decant oil, the primary raw material in the production of needle coke, during the current quarter and nine months was approximately 23% and 13% lower, respectively, as compared to a year ago, which contributed positively to the gross margin. Gross profit as a percentage of calcium carbide product sales for the quarter ended April 30, 1998 was 16.8% versus 17.4% in the prior year comparable quarter. The decrease in the gross margin resulted primarily from lower desulfurization sales and lower sales of calcium carbide for fuel gas applications. Gross profit as a percentage of calcium carbide product sales for the nine months ended April 30, 1998 was 16.6% versus 15.5% in the prior year comparable period. The increase was primarily the result of improved product sales mix, coupled with lower operating costs during the current period. Selling, general and administrative expenditures for the quarter ended April 30, 1998 were $3.7 million versus $3.4 million in the comparable quarter a year ago. Total expenses increased in the current quarter primarily as a result of increased consulting expenditures and increased marketing expenditures in the graphite electrode products business. Selling, general and administrative expenditures for the nine months ended April 30, 1998 were $11.3 million versus $10.8 million in the comparable period a year ago. The prior year amount was unusually high as a result of a settlement of a lawsuit and the accrual of costs associated with the search for a new chief executive officer for the Company. Excluding these unusual items, expenditures increased $1.0 million in the current period as a result of the items noted in the quarterly discussion above. Other compensation for the quarter and nine months ended April 30, 1998 included $0.2 million and $0.7 million, respectively, accrued under the Company's Incentive Bonus Plan. Other compensation for the quarter and nine months ended April 30, 1997 included $0.3 million and $1.0 million, respectively, in charges associated with the Company's Incentive Bonus Plan. Early retirement/severance charges for the quarter and nine months ended April 30, 1997 represent costs associated with the retirement of two executives of the Company. During the quarter ended April 30, 1998, the Company recorded a $38 million pretax charge ($25 million after expected tax benefits), classified as "other expense" in the Unaudited Condensed Consolidated Statement of Operations for the quarter and nine months ended April 30, 1998, for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with pending antitrust matters. See "Item 1 - Legal Proceedings" in Part II below. The Antitrust Charge includes amounts which may be paid in 1998 and beyond, including through settlements with customers, fines and other costs. Based on the information available to it to date, the Company believes that the Antitrust Charge is sufficient to address the resolution of the civil suits and other claims and costs associated with the antitrust investigations. In addition, the Company believes that its cash flows from operations and availability under the 1997 Revolving Credit Facility will be sufficient to fund all of its planned liquidity needs, including the resolution of the antitrust matters described above, through at least the expiration of the 1997 Revolving Credit Facility in September 2002. However, circumstances could change and the actual liabilities, costs and expenses resulting from the antitrust matters (including the Commission antitrust investigation) could differ materially from the current estimate which could adversely affect the Company's ability to service its currently planned liquidity needs. Net interest expense for the quarter ended April 30, 1998 was $1.2 million and included $1.5 million of interest expense associated with the 1997 Revolving Credit Facility and $0.1 million in bank fees, less $0.4 million in capitalized interest. Net interest expense for the quarter ended April 30, 1997 was $1.9 million and included $2.5 million of interest expense associated with the Senior Notes, less $0.4 million in interest income associated with the Company's cash equivalents and short-term investments and $0.2 million of capitalized interest. Net interest expense for the nine months ended April 30, 1998 was $3.8 million, including $3.4 million of interest expense associated with the 1997 Revolving Credit Facility, $1.5 million of interest expense associated with the Senior Notes and $0.4 million in bank fees, less capitalized interest of $1.2 million and interest income of $0.3 million. Net interest expense for the nine months ended April 30, 1997 was $6.1 million, including $7.4 million of interest expense associated with the Senior Notes, less $1.1 million of interest income and $0.2 million in capitalized interest. The income tax benefits for the quarter and nine months ended April 30, 1998 were recorded based on the Company's projected effective income tax rate for the fiscal year ending July 31, 1998. The current year effective rate differs from the federal statutory rate due primarily to state taxes, offset by benefits derived from the Company's foreign sales corporation. See Note 3 to the Unaudited Condensed Consolidated Financial Statements for more details on the Company's effective tax rate. 14 As a result of the Tender and revolving credit facility refinancing, the Company recorded a $6.4 million net extraordinary loss on the early retirement of debt during the nine months ended April 30, 1998. This extraordinary charge represents the premium paid to Senior Note holders in connection with the Tender and the write off of unamortized deferred financing fees associated with the Senior Notes tendered and the 1995 Revolving Credit Facility. Recently Issued Accounting Pronouncements The Company adopted SFAS #128, "Earnings per Share", during its fiscal second quarter ended January 31, 1998. See Note 1 to the Unaudited Condensed Consolidated Financial Statements for a discussion of this new accounting standard. The Financial Accounting Standards Board has recently issued SFAS #130, "Reporting Comprehensive Income", SFAS #131,"Disclosure about Segments of an Enterprise and Related Information" and SFAS #132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The Company is required to adopt these new reporting standards for its fiscal year ending July 31, 1999. The Company is evaluating the effects on disclosure of these new reporting standards. Liquidity and Capital Resources Liquidity The Company's liquidity needs are primarily for capital expenditures, working capital and debt service on its revolving credit facility. The Company has undertaken a substantial modernization program with respect to its graphite electrode production facilities and several other major capital projects expected to increase total capital expenditures to approximately $65 million in fiscal 1998 and $40 million in fiscal 1999. The Company believes that its cash flows from operations and availability under its revolving credit facility will be sufficient to fund all of its planned liquidity needs through at least the expiration of the 1997 Revolving Credit Facility in September 2002. However, in the event these resources are not sufficient to fund the Company's capital expenditures (including cash needs for the modernization program and other major capital projects), 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 would be required to obtain additional funding. There can be no assurance that sources of funds would be available in amounts sufficient for the Company to meet its obligations or on terms favorable to the Company. On September 26, 1997, the Company completed the Tender (See Note 4 to the Unaudited Condensed Consolidated Financial Statements). The tender price paid to holders of the Senior Notes was $1,086.20 for each $1,000 in Senior Note principal. Also, most holders received an additional $15.00 per $1,000 in Senior Note principal in exchange for their consent to eliminate substantially all of the restrictive covenants and certain default provisions in the Senior Note Indenture other than the covenants to pay interest on and principal of the Senior Notes and the default provisions related to such covenants. Consents were received by holders of more than a majority of the outstanding Senior Notes, resulting in the elimination of such restrictive covenants and default provisions. After the Tender, $0.1 million in Senior Notes were outstanding. In connection with the Tender, the Company entered into an agreement with a consortium of banks led by PNC Bank for a five year, $150 million revolving credit facility with a $15 million sub-limit for standby letters of credit (the 1997 Revolving Credit Facility, as amended). The 1997 Revolving Credit Facility replaces a $25 million revolving credit facility with PNC Bank entered into on December 1, 1995 (the 1995 Revolving Credit 15 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 (currently 0.625%) based on a leverage calculation (specifically, the Consolidated Total Indebtedness to EBITDA Ratio). As of April 30, 1998, the interest rate on borrowings outstanding under the 1997 Revolving Credit Facility was 6.4%. Repayment of funds borrowed under the new credit agreement are not required until the expiration of the facility on September 25, 2002. The most restrictive covenants under the 1997 Revolving Credit Facility include a minimum Interest Coverage Ratio of 3.5 to 1.0, a maximum Consolidated Total Indebtedness to EBITDA Ratio of 3.0 to 1.0 and a minimum Consolidated Tangible Net Worth ratio, all as defined in the 1997 Revolving Credit Facility agreement. In April 1998, the 1997 Revolving Credit Facility was amended to incorporate the Antitrust Charge (See "Item 1 - Legal Proceedings" in Part II below and Note 5 to the Unaudited Condensed Consolidated Financial Statements). The financial covenants in the 1997 Revolving Credit Facility agreement were generally amended to exclude the effects of the Antitrust Charge. The 1997 Revolving Credit Facility is collateralized with receivables and inventory. In the process of developing permit applications for facility upgrades, the Company determined that certain parameters in its air permits do not reflect current operations. The Company is working to resolve this issue and has advised the appropriate state environmental authorities. At this time, management cannot determine the magnitude of the costs, if any, that may be incurred. On March 4, 1998, the Company's Board of Directors authorized the expenditure of up to $10 million to repurchase the Company's common stock. Subject to price and market considerations and applicable securities laws, such purchases may be made from time to time in open market, privately negotiated or other transactions. No time limit was placed on the duration of the repurchase program. The extent and timing of any repurchases will depend on market conditions and other corporate considerations. During the quarter ended April 30, 1998, the Company repurchased 5,000 shares of its common stock under its stock repurchase program. Cash Flow Information Cash flow provided by operations for the quarter ended April 30, 1998 was $7.9 million, including $6.4 million of cash inflows from net income plus non-cash expenses, which included $24.2 million in net non-cash expenses from the Antitrust Charge (See "Item 1 - Legal Proceedings" in Part II below). In addition, other working capital changes increased cash flow from operations by $1.5 million, including a $3.3 million inflow from accounts receivable and a $3.2 million inflow from inventory, partially offset by a $4.5 million net outflow from income taxes. Net interest and tax payments for the quarter were $1.4 million and $3.8 million, respectively. Cash flow provided by operations for the nine months ended April 30, 1998 was $18.1 million. Cash inflows from net income plus non-cash expenses of $28.2 million, including $24.2 million from the Antitrust Charge, were partially offset by a $10.1 million net cash outflow due to changes in other working capital items, including a $2.3 million increase in inventories and a $4.3 million net out flow from income taxes. Net interest and tax payments for the nine-month period were $8.3 million and $5.0 million, respectively. Investing activities for the quarter and nine months ended April 30, 1998 included $20.7 million and $56.0 million, respectively, in capital expenditures. Also, investing activities during the nine months ended April 30, 1998 included a $15.8 million net cash inflow from the sale of short-term investments. The Company believes that most of its future investing activity cash flow requirements will be for capital expenditures, including its modernization and expansion programs. The Company believes that its future cash flow provided by operations and borrowings under the 1997 Revolving Credit Facility will be adequate to fund its currently planned investing needs. 16 Cash flow provided by financing activities for the quarter ended April 30, 1998 was $12.9 million, including a $14.8 million net inflow from the 1997 Revolving Credit Facility. Cash flow provided by financing activities for the nine months ended April 30, 1998 was $14.2 million. Major cash flow items included an $97.7 million net cash inflow from the 1997 Revolving Credit Facility, offset by outflows of $79.9 million for the principal amount of Senior Notes repurchased in connection with the Tender and $8.1 million for the related tender premium. Other Items Year 2000 The Company is in the process of modifying, upgrading and replacing certain components of its computer software and operating systems to accommodate the "Year 2000" changes required for correct recording of dates in the Year 2000 and beyond. The Company believes that its current plan will adequately address the "Year 2000" issue and the Company does not expect to experience significant operational problems associated with "Year 2000" compliance once its program is complete. The costs of system conversions and software upgrades, which are expected to be completed by mid-1999, are not expected to be material. Niagara Falls Labor Contract In May, 1998, the Company and the Union representing the hourly work force at its Niagara Falls, New York facility agreed to a five-year extension of its labor agreement. The extended agreement, which expires in January, 2004, covers 285 hourly workers and was negotiated to terms deemed satisfactory to the Company. Forward-Looking Statements This report may contain forward looking statements that are based on current expectations, estimates and projections about the industries in which the Company operates, management's beliefs and assumptions made by management. Words such as "expects," "anticipates," "intends," "plans," "believes," "estimates" and variations of such words and similar expressions are intended to identify such forward looking statements. These statements constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, and are subject to the safe harbor created thereby. These statements are based on a number of assumptions that could ultimately prove inaccurate and, therefore, there can be no assurance that such statements will prove to be accurate. Factors which could affect actual future results include the occurrence of unanticipated events or circumstances relating to investigations by the Department of Justice, 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. Such factors also include the possibility that increased demand or prices for the Company's products may not occur or continue, changing economic and competitive conditions (including currency exchange rate 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 the Company's 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. 17 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 Antitrust Division of the United States Department of Justice (the 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., SGL Carbon Corporation and SGL Carbon AG as defendants and seek treble damages. On March 30, 1998, a number of purchasers who were previously included in the proported 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 cases and names the same defendants as well as Showa Denko Carbon, Inc. (the "Named Defendants"). Thereafter, four additional purchasers and a related party of one purchaser who were previously included in the proported class of plaintiffs covered by the consolidated case instituted their own actions against the Named Defendants and, in several cases, certain present or former related parties of UCAR International, Inc. asserting substantially the same claims and seeking the same relief as in the consolidated cases. Three such actions were filed in the United States District Court for the Eastern District of Pennsylvania on April 3, 1998, April 17, 1998 and May 14, 1998, respectively. One action was filed in the United States District Court for the Northern District of Ohio on April 17, 1998; the Company is seeking to transfer this action to the Eastern District of Pennsylvania. The Company has also advised the Commission of the European Communities (the "Commission") that it wishes to invoke its Notice on the non-imposition or reduction of fines in cartel cases (the Leniency Notice). Generally under these Guidelines, the Commission may substantially reduce fines and other penalties if a company cooperates with the Commission and in the judgment of the Commission provides significant information. The Company understands that the Commission will determine any fines at the completion of its proceedings which may not be concluded for a year or more. During the quarter ended April 30, 1998, the Company recorded a $38 million pretax charge ($25 million after expected tax benefits) for potential liabilities resulting from civil lawsuits, claims, legal costs and other expenses associated with the antitrust matters noted above and the investigations initiated by the antitrust enforcement authorities of the European Union (the Antitrust Charge). The Antitrust Charge includes amounts which may be paid in 1998 and beyond, including through settlements with customers, fines and other costs. Based on the information available to it to date, the Company believes that the Antitrust Charge is sufficient to address the resolution of the civil suits and other claims and costs associated with the antitrust investigations. However, circumstances could change and the actual liabilities, costs and expenses resulting from the antitrust matters (including the Commission antitrust investigation) could differ materially from the current estimate. 18 In April 1995, the Company was named as a third-party defendant in a Superfund action in Federal District Court in New Jersey relating to waste disposal at a landfill located in Sayreville, New Jersey (the Sayreville Litigation). Carbon Graphite Group, Inc. was named as successor to Airco-Speer Company (Airco-Speer). Since this landfill was closed prior to the organization of the Company in 1988, the Company's only possible connection with the Sayreville Litigation would be if it were a successor to Airco-Speer, a claim which it disputes. Furthermore, pursuant to the Asset Purchase Agreement by which the Company acquired its operating assets from The BOC Group, plc. (BOC), BOC agreed to provide an indemnification for certain environmental matters. BOC has assumed and commenced the defense of the Sayreville Litigation and agreed to indemnify the Company for losses associated therewith in accordance with the terms of the Asset Purchase Agreement. In addition, BOC asserts that the liability in this matter was settled by a 1992 agreement with the plaintiffs in the present case. As a result of a motion for summary judgment, the Court has substantially reduced the scope of claims which may be brought against the Company. Based on the above, management does not believe that the Company will incur a material loss with respect to the Sayreville Litigation. The Company is also involved in various legal proceedings considered incidental to the conduct of its business, the ultimate disposition of which, in the opinion of the Company's management, will not have a material adverse effect on the financial position, fiscal year operating results, cash flows or business of the Company. Claims (other than environmental and contract claims and claims for punitive damages) against the Company are generally covered by insurance which includes a $250,000 per occurrence self-insured retention. As of April 30, 1998, a $0.4 million reserve has been recorded to provide for estimated exposure on claims for which a loss is deemed probable. Item 2 CHANGES IN SECURITIES On April 15, 1998, the Company issued 7,000 unregistered shares of Common Stock in connection with employee stock option exercises. The average option exercise price paid to the Company was $20.48 per share. Item 6 A. INDEX TO EXHIBITS Exhibit Page - ----------- ---- 10.49 Second Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Waiver between the Company and PNC Bank, National Association dated April 30, 1998 ... * * Filed by EDGAR. B. REPORTS ON FORM 8-K During the quarter ended April 30, 1998, the Company filed a current report on Form 8-K dated March 30, 1998 describing the estimated financial impact of an extended shutdown of the needle coke production facility of its affiliate, Seadrift Coke, L.P. Also, the Company filed a current report on Form 8-K dated April 20, 1998 disclosing its intent to record the Antitrust Charge (See "Item 1 - - Legal Proceeding" above). 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the following authorized officers on June 12, 1998. 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) /s/ Michael F. Supon Vice President and General Manager, - ---------------------- Electrodes and Graphite Specialty Products (Michael F. Supon) /s/ Ararat Hacetoglu Vice President and General Manager, Carbide Products - ---------------------- (Ararat Hacetoglu) /s/ Jim J. Trigg Vice President and General Manager, Seadrift Coke, L.P. - ---------------------- (Jim J. Trigg) 20 EX-10.49 2 2ND AMENDMENT TO REVOLVING CREDIT AGREEMENT SECOND AMENDMENT TO REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT AND WAIVER This SECOND AMENDMENT TO REVOLVING CREDIT AND LETTER OF CREDIT ISSUANCE AGREEMENT AND WAIVER is made as of this 30th day of April 1998 (this "Second 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 Revolving Credit and Letter of Credit Issuance Agreement, as amended by the First Amendment, is hereinafter referred to as the "Original Credit Agreement"). WITNESSETH WHEREAS, as a result of certain investigations being conducted by the United States Department of Justice and similar enforcement authorities of the European Union as well as certain private claims and civil actions arising out of the alleged pattern of activities which are the basis of the above referenced proceedings (all of the foregoing collectively referred to herein as the "Investigation"), the Borrower will, without admitting or denying either culpability or liability, record a charge of Thirty Eight Million Dollars ($38,000,000) (the "Special Reserve") for its Fiscal Quarter ending April 30, 1998 for potential liabilities which may be incurred as a result of the Investigation; and WHEREAS, the Borrower has requested certain amendments to and waivers of the terms of the Original Credit Agreement to accommodate the Investigation and the Special Reserve; and WHEREAS, the Agent, the Lenders and the L/C Issuer have agreed to make such amendments and waivers 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: Adjusted EBITDA shall mean, for any period, the Borrower's EBITDA for such period minus the net after tax amount of any charge against the Special Reserve occurring during such period. April 1998 Delivery Date shall mean the date on which the Borrower's financial statements and Compliance Certificate for the Fiscal Quarter ending April 30, 1998 are required to be delivered to the Lenders pursuant to items (i) and (iii) of Section 6.02. Investigation shall mean certain investigations being conducted by the United States Department of Justice and similar enforcement authorities of the European Union as well as certain private claims and civil actions arising out of the alleged pattern of activities which are the basis of the above referenced proceedings. Second Amendment shall mean the Second Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Waiver dated as of the Second Amendment Effective Date. Second Amendment Effective Date shall mean April 30, 1998. Second Amendment Fee shall mean a fee equal to five (5) basis points of each Lender's Revolving Credit Commitment which shall be payable by the Borrower to each Lender who approves the Second Amendment on or before the Second Amendment Effective Date. Special Reserve shall mean the charge of Thirty-Eight Million Dollars ($38,000,000) (the "Special Reserve") recorded by the Borrower for its Fiscal Quarter ending April 30, 1998 for potential liabilities which may be incurred as a result of the Investigation. Section 1.02 Amendment to Section 2.03 of the Original Credit Agreement. Section 2.03 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 2.03. Commitment Fee. Accruing from Closing Date until the Second Amendment Effective Date, the Borrower agrees to pay to the Agent for the account of each Lender, as consideration for such Lender's Revolving Credit Commitment hereunder, a commitment fee (the "Commitment Fee") equal to the Applicable Commitment Fee per annum, as set forth in the Original Credit Agreement, (all computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily amount equal to such Lender's Revolving Credit Commitment minus such Lender's Ratable Share of Total Utilization. Accruing from the Second Amendment Effective Date until the Expiration Date, the Borrower agrees to pay to the Agent for the account of each Lender, as consideration for such Lender's Revolving Credit Commitment hereunder, a Commitment Fee equal to the Applicable Commitment Fee per annum, as set forth in the Second Amendment, (all computed on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) on the average daily amount equal to such Lender's Revolving Credit Commitment minus such Lender's Ratable Share of Total Utilization. All Commitment Fees shall be payable (i) quarterly in arrears beginning October 31, 1997 and continuing on the last Business Day of each Fiscal Quarter occurring during the term of the Revolving Credit Commitment thereafter, (ii) on the Expiration Date and (iii) upon acceleration of the Notes. On and after the Second Amendment Effective Date, the term "Applicable Commitment Fee" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the ratio of the Borrower's Consolidated Total Indebtedness to Adjusted EBITDA, as at the end of the preceding fiscal quarter, falls: - ------------------------------------------------------ ------------------------- Consolidated Total Indebtedness Applicable Commitment to Adjusted EBITDA ratio Fee - ------------------------------------------------------ ------------------------- Less than or equal to 1.5 to 1.0 .15% - ------------------------------------------------------ ------------------------- Greater than 1.5 to 1.0 but less than or equal to .175% 2.0 to 1.0 - ------------------------------------------------------ ------------------------- Greater than 2.0 to 1.0 but less than or equal to .20% 2.5 to 1.0 - ------------------------------------------------------ ------------------------- Greater than 2.5 to 1.0 but less than or equal to .225% 3.0 to 1.0 - ------------------------------------------------------ ------------------------- Greater than 3.0 to 1.0 .25% - ------------------------------------------------------ ------------------------- All such adjustments shall be determined as of the date the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered to the Lenders pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding the Applicable Commitment Fee from the Closing Date to and including the April 1998 Delivery Date shall be .175%. Section 1.03 Amendment to Section 2.08(b)(ii) of the Original Credit Agreement. Section 2.08(b)(ii) of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: (ii) Euro-Rate Option. Interest under this Interest Rate Option shall accrue, for each Euro-Rate Portion of the Revolving Credit Loans outstanding, for any Euro-Rate Interest Period selected, at a rate per annum equal to the sum of (A) the Euro-Rate plus (B) the Applicable Euro-Rate Margin as determined below. The rate of interest established pursuant to the proceeding sentence of this Section 2.08(b)(ii) for each Euro-Rate Portion shall be adjusted from time to time in accordance with the provisions of Section 2.08(c). For purposes of this Agreement, the term "Applicable Euro-Rate Margin" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the ratio of the Borrower's Consolidated Total Indebtedness to Adjusted EBITDA as at the end of the preceding fiscal quarter falls: - ---------------------------------------------- -------------------------------- Consolidated Total Indebtedness Applicable Euro-Rate Margin to Adjusted EBITDA ratio - ---------------------------------------------- -------------------------------- Less than or equal to 1.5 to 1.0 1/2% - ---------------------------------------------- -------------------------------- Greater than 1.5 to 1.0 but less than 5/8% or equal to 2.0 to 1.0 - ---------------------------------------------- -------------------------------- Greater than 2.0 to 1.0 but less than 3/4% or equal to 2.5 to 1.0 - ---------------------------------------------- -------------------------------- Greater than 2.5 to 1.0 but less than 7/8% or equal to 3.0 to 1.0 - ---------------------------------------------- -------------------------------- Greater than 3.0 to 1.0 1% - ---------------------------------------------- -------------------------------- All adjustments shall be determined as of the date on which the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding the Applicable Euro-Rate Margin from the Second Amendment Effective Date to and including the April 1998 Delivery Date shall be five-eighths of one percent (5/8%). Prior to the Second Amendment Effective Date, the Applicable Euro Rate Margin shall be determined under the Original Credit Agreement. Section 1.04 Amendment to Section 2.17 (b) of the Original Credit Agreement. Section 2.17 (b) of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: (b) The Borrower shall pay (i) to the L/C Issuer for its own account a fronting fee equal to 1/8 of 1% per annum (the "L/C Fronting Fee") on the aggregate daily (computed at the opening of business and on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) Stated Amount of the outstanding Letters of Credit for the period in question, and (ii) to the Agent for the ratable account of the Lenders a fee (the "Letter of Credit Fee") equal to the Applicable Letter of Credit Fee per annum, as determined below, on the aggregate daily (computed at the opening of business and on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed) Stated Amount of the outstanding Letters of Credit for the period in question. The Letter of Credit Fee and the L/C Fronting Fee shall be payable (i) quarterly in arrears on the last Business Day of each Fiscal Quarter occurring during the term of this Agreement thereafter, (ii) on the Expiration Date or (iii) upon acceleration of the Notes. Any issuance of an amendment to extend the stated expiration date of a Letter of Credit or an amendment to increase the Stated Amount of a Letter of Credit shall be treated as an issuance of a new Letter of Credit for purposes of calculation of Letter of Credit Fee and the L/C Fronting Fee due and payable hereunder. The Borrower shall also pay to the L/C Issuer the L/C Issuer's customary documentation fees payable with respect to the Letters of Credit as the L/C Issuer may generally charge from time to time. After the occurrence of an Event of Default (which continues after the expiration of any cure period applicable thereto) and during the continuation thereof, the rate at which the Letter of Credit Fee is calculated shall be increased by two hundred (200) basis points (2%) above the pre-default rate; the increase to be payable monthly during the continuation of the Event of Default. For purposes of this Agreement on and after the Second Amendment Effective Date, the term "Applicable Letter of Credit Fee" shall mean the rate per annum set forth in the chart below which corresponds to the range of ratios in which the ratio of the Borrower's Consolidated Total Indebtedness to Adjusted EBITDA as at the end of the preceding fiscal quarter falls: - ------------------------------------------------- ----------------------------- Consolidated Total Indebtedness Applicable Letter of to Adjusted EBITDA ratio Credit Fee - ------------------------------------------------- ----------------------------- Less than or equal to 1.5 to 1.0 1/2% - ------------------------------------------------- ----------------------------- Greater than 1.5 to 1.0 but less 5/8% than or equal to 2.0 to 1.0 - ------------------------------------------------- ----------------------------- Greater than 2.0 to 1.0 but less 3/4% than or equal to 2.5 to 1.0 - ------------------------------------------------- ----------------------------- Greater than 2.5 to 1.0 but less 7/8% than or equal to 3.0 to 1.0 - ------------------------------------------------- ----------------------------- Greater than 3.0 to 1.0 1% - ------------------------------------------------- ----------------------------- All adjustments shall be determined as of the date the Borrower's quarterly financial statements and Compliance Certificate are required to be delivered pursuant to items (i) and (iii) of Section 6.02. The foregoing notwithstanding, the Applicable Letter of Credit Fee from the Closing Date to and including the April 1998 Delivery Date shall be 5/8%. Section 1.05 Amendment to Section 4.07 of the Original Credit Agreement. Section 4.07 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 4.07. Litigation. Except for the Investigation and the matters set forth on Schedule 4.07, there are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower, threatened against the Borrower, or any Subsidiary of the Borrower, at law or equity before any Official Body which individually or in the aggregate, if adversely determined would be likely to result in any Material Adverse Change. Neither Borrower nor any Subsidiary of the Borrower is in violation of any order, writ, injunction or decree of any Official Body which could be expected to result in any Material Adverse Change. Section 1.06 Amendment to Section 4.14 of the Original Credit Agreement. Section 4.14 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 4.14. Compliance with Laws4.14. Compliance with Laws. Except for matters arising from or relating to the Investigation (as to which the Borrower does not admit that it has failed to comply with any Laws), the Borrower and its Subsidiaries are in compliance in all material respects with all applicable Laws (other than Environmental Laws) in all jurisdictions in which the Borrower and its Subsidiaries are presently or will be doing business except where the failure to do so would not, individually or in the aggregate, constitute a Material Adverse Change. Section 1.07 Amendment to Section 4.23 of the Original Credit Agreement. Section 4.23 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 4.23. Burdensome Restrictions. No contract, lease, agreement or other instrument to which Borrower or any of its Subsidiaries is a party or is bound and, except for matters arising from or relating to the Investigation, no provision of applicable law or governmental regulation would reasonably be expected to have a Material Adverse Change. Section 1.08 Amendment to Section 4.26 of the Original Credit Agreement. Section 4.26 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 4.26. No Material Adverse Change4.26. No Material Adverse Change. Except for matters arising from or relating to the Investigation (provided that the Borrower's aggregate total liability determined on a consolidated basis for such conduct is less than or equal to the amount of the Special Reserve), no event has occurred since July 31, 1997 and is continuing which has had or would reasonably be expected to have a Material Adverse Change. Section 1.09 Amendment to Section 6.11 of the Original Credit Agreement. Section 6.11 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 6.11. Compliance with Laws. The Borrower and its Subsidiaries shall comply with all applicable Laws (other than Environmental Laws) in all respects, provided that neither the Borrower nor any Subsidiary shall be deemed to be in violation of this Section 6.11 for any of the following: (i) matters arising from or relating to the Investigation; provided that the Borrower's aggregate total liability determined on a consolidated basis for such conduct is less than or equal to the amount of the Special Reserve, or (ii) any other failure to comply with any Law so long as such non-compliance does not result in fines, penalties, other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. Section 1.10 Amendment to Section 7.12 of the Original Credit Agreement. Section 7.12 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 7.12. Minimum Consolidated Tangible Net Worth. On and after April 30, 1998, the Borrower shall not permit its Consolidated Tangible Net Worth to be less than an amount equal to the sum of (i) 85% of the Consolidated Tangible Net Worth as of April 30, 1998, plus (ii) 50% of the positive net income for each Fiscal Quarter ending after April 30, 1998 of the Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP consistently applied, plus (iii) all increases to equity from the issuance by the Borrower after April 30, 1998 of additional equity securities or other equity capital investments. Section 1.11 Amendment to Section 7.13 of the Original Credit Agreement. Section 7.13 of the Original Credit Agreement is hereby amended and restated in its entirety to read 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 3.5 to 1.0; 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. Section 1.12 Amendment to Section 7.14 of the Original Credit Agreement. Section 7.14 of the Original Credit Agreement is hereby amended and restated in its entirety to read as follows: 7.14. Leverage Ratio. The Borrower shall not permit its Consolidated Total Indebtedness to EBITDA Ratio to exceed 3.0 to 1.0; provided, however, that for purposes of 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. ARTICLE II WAIVER Section 2.01 Waiver of Compliance. To the extent such waiver is required to prevent a Default or Event of Default under the Original Credit Agreement solely by reason of matters arising from or relating to the Investigation or the Special Reserve, but only to such extent, the Agent, the Lenders, and the L/C Issuer hereby waive compliance as of the Second Amendment Effective Date with the following sections of the Original Credit Agreement: (i) Section 4.07 for Fiscal Quarters ending on and prior to April 30, 1998, (ii) Section 4.14 for Fiscal Quarters ending on and prior to April 30, 1998, (iii) Section 4.23 for Fiscal Quarters ending on and prior to April 30, 1998, (iv) Section 4.26 for Fiscal Quarters ending on and prior to April 30, 1998, (v) Section 5.01(a) for Fiscal Quarters ending on and prior to April 30, 1998, (vi) Section 5.01(f) for Fiscal Quarters ending on and prior to April 30, 1998, (vii) Section 5.02(a) for Fiscal Quarters ending on and prior to April 30, 1998, (viii) Section 6.11 for Fiscal Quarters ending on and prior to April 30, 1998, (ix) Section 7.12 for Fiscal Quarters ending on and prior to April 30, 1998, (x) Section 7.13 for Fiscal Quarters ending on and prior to April 30, 1998, (xi) Section 7.14 for Fiscal Quarters ending on and prior to April 30, 1998. Section 2.02 No Other Amendments or Waivers. The amendments and waivers set forth in Article I and Article II hereof, respectively, do not either implicitly or explicitly alter, waive or amend, except as expressly provided in this Second Amendment, the provisions of the Original Credit Agreement. The amendments and waivers set forth in Article I and Article II hereof, respectively, 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 Agent, the Lenders, and the L/C Issuer under the Original Credit Agreement with respect to any such violation. Except as expressly set forth in this Second Amendment, nothing in this Second Amendment shall be deemed or construed to be a waiver or release of, or a limitation upon, the exercise by the Agent, the Lenders, and the L/C Issuer of any of their respective rights and remedies under the Original Credit Agreement and the other Loan Documents, whether arising as a consequence of any Events of Default which may now exist or otherwise, and all such rights and remedies are hereby expressly reserved. ARTICLE III BORROWER'S SUPPLEMENTAL REPRESENTATIONS Section 3.01. Incorporation by Reference. As an inducement to the Agent, the Lenders, and the L/C Issuer to enter into this Second 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 Second Amendment. ARTICLE IV CONDITIONS PRECEDENT Section 4.01 Conditions Precedent. Each of the following shall be a condition precedent to the effectiveness of this Second Amendment: (i) The Agent shall have received, on or before the Second Amendment Effective Date, the following items, each, unless otherwise indicated, dated on or before the Second 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 Second Amendment; (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 Second Amendment Fee to the Agent for the benefit of the Lenders; (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 Second Amendment Effective Date and the Agent shall have received a certificate signed by an Authorized Officer of the Borrower, dated the Second Amendment Effective Date, stating that: (A) the representations and warranties made pursuant to Section 3.01 of this Second Amendment and in the other Loan Documents, as amended hereby, are true and correct on and as of the Second 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 and waivers set forth in this Second 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 Second Amendment; (D) Taking into account the amendments and waivers set forth in this Second Amendment, no Material Adverse Change has occurred which has not been disclosed to the Agent; and (E) Taking into account the amendments and waivers set forth in this Second 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 V GENERAL PROVISIONS Section 5.01 Ratification of Terms. Except as expressly amended by this Second 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 5.02 References. All notices, communications, agreements, certificates, documents or other instruments executed and delivered after the execution and delivery of this Second 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 Second Amendment, but nevertheless all such references shall include this Second Amendment unless the context requires otherwise. From and after the Amendment Effective Date, all references in the Original Credit Agreement and each of the other Loan Documents to the "Agreement" shall be deemed to be references to the Original Credit Agreement as amended hereby. Section 5.03 Incorporation Into Original Credit Agreement. This Second Amendment is deemed incorporated into the Original Credit Agreement. To the extent that any term or provision of this Second 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 5.04 Counterparts. This Second 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 Second Amendment. Section 5.05 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 5.06 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 Second 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 5.07 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 Second Amendment and the other documents, instruments and certificates delivered in connection herewith. Section 5.08 GOVERNING LAW. THIS SECOND 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 5.09 Headings. The headings of the sections in this Second Amendment are for purposes of reference only and shall not be deemed to be a part hereof. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto, with the intent to be legally bound hereby, have caused this Second Amendment to Revolving Credit and Letter of Credit Issuance Agreement and Waiver 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/ Walter E. Damian By: /s/ Stephen D. Weaver (SEAL) Name: Walter E. Damian Name: Stephen D. Weaver Title: VP-Human Resources Title: Chief Financial Officer Agent and L/C Issuer: PNC BANK, NATIONAL ASSOCIATION By /s/ Mark W. Rutherford (SEAL) Name: Mark W. Rutherford Title: 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: Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] 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 CHICAGO Commitment: $13,000,000.00 Ratable Share: 8.66% By /s/ Kenneth Kramer (SEAL) Name: Kenneth Kramer Title: Vice President Revolving Credit CORESTATES BANK, N.A. Commitment: $18,000,000.00 Ratable Share: 12% By /s/ Donna Jemhart (SEAL) Name: Donna Jemhart Title: Vice President Revolving Credit KEYBANK, NATIONAL ASSOCIATION Commitment: $13,000,000.00 Ratable Share: 8.66% By /s/ Lawrence A. Mack (SEAL) Name: Lawrence A. Mack Title: Vice President Revolving Credit STANDARD CHARTERED BANK Commitment: $13,000,000.00 Ratable Share: 8.66% By /s/ Kristina McDavid (SEAL) Name: Kristina McDavid Title: Vice President [SIGNATURES CONTINUED ON FOLLOWING PAGE] Revolving Credit MELLON BANK, N.A. Commitment: $13,000,000.00 Ratable Share: 8.66% By /s/ Roger N. Stanier (SEAL) Name: Roger N. Stanier Title: Vice President Revolving Credit NATIONSBANK, N.A. Commitment: $18,000,000.00 Ratable Share: 12% By /s/ Philip Durawd (SEAL) Name: Philip Durawd Title: Vice President 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 EX-27 3 FDS
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-Mos Jul-31-1998 Aug-01-1997 Apr-30-1998 0 0 49,454 (2,030) 61,711 123,736 324,564 (190,918) 265,211 75,569 97,782 0 0 99 81,031 265,211 220,979 220,979 181,674 192,999 38,657 0 3,780 (14,457) (4,639) (9,818) 0 (6,417) 0 (16,235) (1.87) (1.87)
EX-27 4 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-Mos Jul-31-1996 Aug-01-1995 Apr-30-1996 28,682 0 45,644 (2,765) 52,606 136,739 234,859 (171,738) 205,820 33,753 84,284 0 0 92 69,338 205,820 193,486 193,486 159,930 169,198 2,110 0 6,989 15,189 4,857 10,332 0 (2,000) 0 8,332 1.14 0.98
EX-27 5 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-K FOR THE ANNUAL PERIOD ENDED JULY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-Mos Jul-31-1996 Aug-01-1995 Jul-31-1996 16,586 0 47,288 (1,896) 54,779 140,934 239,059 (173,882) 212,870 36,109 81,763 0 0 94 74,714 212,870 259,394 259,394 214,396 227,113 2,353 120 9,073 20,735 6,416 14,319 0 (2,177) 0 12,142 1.61 1.42
EX-27 6 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-Mos Jul-31-1997 Aug-01-1996 Oct-31-1996 2,650 15,235 52,952 (1,926) 55,715 137,913 244,131 (176,353) 212,340 31,123 81,763 0 0 95 79,181 212,340 67,716 67,716 55,900 59,921 267 0 2,105 5,423 1,900 3,523 0 0 0 3,523 0.42 0.40
EX-27 7 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-Mos Jul-31-1997 Aug-01-1996 Jan-31-1997 11,181 15,543 53,060 (1,970) 51,607 142,271 249,094 (178,418) 219,493 32,042 81,763 0 0 97 85,056 219,493 142,797 142,797 117,727 125,155 914 0 4,197 12,531 4,387 8,144 0 0 0 8,144 0.97 0.93
EX-27 8 FDS
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-Mos Jul-31-1997 Aug-01-1996 Apr-30-1997 9,073 15,687 51,370 (2,000) 55,687 145,147 257,040 (180,791) 227,835 34,691 81,763 0 0 97 90,564 227,835 217,720 217,720 178,371 189,216 2,332 0 6,099 20,073 7,181 12,892 0 0 0 12,892 1.52 1.46
EX-27 9 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-K FOR THE ANNUAL PERIOD ENDED JULY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-Mos Jul-31-1997 Aug-01-1996 Jul-31-1997 7,935 0 51,117 (2,029) 59,445 143,336 271,493 (183,840) 235,860 42,511 80,035 0 0 97 96,112 235,860 289,586 289,586 235,401 249,721 2,691 120 7,894 29,160 10,732 18,428 0 (126) 0 18,302 2.15 2.09
EX-27 10 FDS - AMENDED FOR SFAS #128
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-Mos Jul-31-1997 Aug-01-1997 Oct-31-1997 0 0 50,779 (2,030) 61,858 123,369 286,951 (186,079) 228,846 37,011 77,982 0 0 98 96,089 228,846 73,394 73,394 59,336 62,855 228 0 1,473 8,838 3,185 5,653 0 (6,417) 0 (764) (0.09) (0.09)
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