The Carbide/Graphite Group, Inc. History

Company Perspectives:

The Carbide/Graphite Group is a major U.S. manufacturer of graphite electrode products and calcium carbide products. Graphite electrodes are used as conductors of electricity, and are consumed, in the electric arc furnace (EAF) steelmaking process common to all minimill steel producers. Calcium carbide and derivative products, primarily acetylene, are used in the manufacture of specialty chemicals, as a fuel in metal cutting and welding and for iron and steel desulfurization. Carbide/Graphite Group is the only manufacturer of graphite electrodes that produces its own requirements of needle coke, the principal raw material used in the manufacture of graphite electrodes. The Carbide/Graphite Group also sells needle coke to other manufacturers of graphite products. Key Dates:

Key Dates:

1899:

Speer Carbon is founded in St. Mary's, Pennsylvania.

1920:

Speer begins manufacturing graphite electrodes for steel production.

1961:

Airco purchases Speer Carbon and renames it Airco Speer.

1966:

Airco Speer purchases National Carbide, a maker of calcium carbide.

1978:

British BOC Group acquires Airco Speer, which becomes its Carbon/Graphite Division.

1982:

BOC launches $250 million expansion of Carbon/Graphite operations.

1988:

Management of BOC's Carbon/Graphite Division lead a leveraged buyout.

1992:

Company becomes known as the Carbide/Graphite Group, Inc.

1995:

Stock is offered on the NASDAQ exchange; specialty graphite business is sold.

1997:

U.S. Justice Department investigates major electrode makers for price fixing.

1998:

Carbide/Graphite sets aside $38 million to settle potential claims from lawsuits, taking an additional charge of $7 million the following year for the same purpose.

1999:

Company restructures, lays off more than 20 percent of its workforce.

2000:

Joint ventures with Austrian and Pittsburgh-based companies are launched.

Company History:

The Carbide/Graphite Group, Inc. produces massive graphite electrodes for use in steel manufacturing; needle coke, a raw ingredient used to form these electrodes; and calcium carbide and related products for use as fuel, in chemical manufacturing, and for other specialized applications. The company's sales are primarily to U.S. customers, with approximately a quarter of its revenues derived from sales to European, Asian, and Central and South American countries. A downturn in demand for electrodes, and the costs associated with antitrust charges levied against the company, have forced a recent restructuring and cuts in both staff and operations.

Roots

The origins of the present-day Carbide/Graphite Group extend back to 1899, when the Speer Carbon Company was founded in St. Mary's, Pennsylvania, by chemist John Speer and financier Andrew Kaul. Speer Carbon began operations as a producer of carbon brushes for electric motors and generators. In 1920 a plant was added in Niagara Falls, New York, to graphitize carbon electrodes that were being made at the Pennsylvania facility. These electrodes were used as consumable tools in the electric manufacturing of steel, which was then a relatively new process. Twelve years later another unit, Speer Resistor Corporation, was established to manufacture carbon resistors for radios.

In 1961 Speer Carbon was purchased by Airco, a producer of gases for industrial and healthcare use, and renamed Airco Speer. Speer and Airco both sold their products to the same types of industrial customers. The following year Airco began a $47 million modernization and expansion of Speer's carbon and graphite operations, and Airco Speer soon became the second largest company in its field. In 1966 Airco acquired National Carbide, which had been formed before World War II to produce calcium carbide at a plant in Louisville, Kentucky, and had later acquired a government-built acetylene plant. Calcium carbide, made from lime and coke, became acetylene gas when mixed with water, which was used for a variety of industrial purposes such as chemical manufacturing and welding.

In 1978 Airco was acquired by British industrial gas giant BOC Group, and four years later BOC launched a new $250 million upgrade program. An electrode manufacturing plant in Ridgeville, South Carolina, and a petroleum needle coke plant in Seadrift, Texas, were built, with the latter producing the raw material used to make carbon electrodes.

A decline in steel production led to a drop in electrode prices during the early 1980s, and in 1988 BOC sold its calcium carbide and graphite producing operations to management and an outside investment group in a $150 million leveraged buyout. As part of the arrangement the electrode plant in South Carolina was sold to Showa Denko of Japan. The newly created company was named the Carbon/Graphite Group, Inc., which was changed slightly to the Carbide/Graphite Group, Inc. in 1992. By this time the company had become the leading U.S.-based maker of graphite and calcium carbide products for industrial use, and the only one producing its own needle coke, which it also sold to outside companies. Graphite products, primarily electrodes, accounted for more than two-thirds of revenues.

A Delayed IPO in the 1990s

In 1992 Carbide/Graphite announced plans to issue three million shares of common stock, but later postponed the offering, citing unfavorable market conditions. In 1995 the company sold its specialty graphite producing operations to competitor SGL Carbon AG of Germany for $62 million, a third of which would be plowed back into plant upgrades. Manufacturing facilities in St. Mary's, Pennsylvania; Dallas, Texas; Kitchener, Ontario; and Montreal, Quebec, were given up in the deal.

The initial public offering (IPO) was revived soon afterward, following a successful stock offering from Carbide/Graphite's top competitor, UCAR International. At this time the company's largest stockholder, Centre Capital Investors, sold its 58 percent stake in the company. Former CEO James Baldwin and several others also sold their shares, with a total of 5.4 million put on the market. Carbide/Graphite's revenues at the time of the IPO stood at $240 million, with half derived from foreign sales. The resurgence of the steel market in the early 1990s had seen the cost of electrodes reach $1.33 a pound, up more than a third from the 1990 price. The company was doing well enough to repurchase substantial chunks of its debt.

The main products manufactured by Carbide/Graphite, massive graphite electrode rods, were now in high demand in the steel industry for use in 'minimill' steel mills. Unlike the traditional steelmaking process in which oxygen was blown through iron that had been separated from ore in a blast furnace, minimills used scrap metal that was melted down by a huge infusion of electricity conducted by graphite electrodes. These electrodes, as large as nine feet long and two tons in weight, were themselves consumed in the process of steelmaking, lasting only about eight hours before they were burned up. The electrodes were manufactured in a time-consuming process in which coal tar pitch and needle coke, a petroleum byproduct, were mixed and formed into rods. They were then baked, with more pitch added, and cooked again in a 5,000 degree oven. This step converted them to graphite, a heat resistant electrical conductor. The entire process took as long as three months to complete.

In 1997 the company named Walter B. Fowler, Jr., president and CEO, replacing Nicholas Kaiser, who had served as CEO since 1994 and president since 1991. Fowler previously had headed Carbide/Graphite's electrode operations. The company was continuing to thrive at this time, reporting annual sales of $259 million and profits of $12.1 million. Its stock price had been climbing steadily as well, topping $29 in early 1997, up from the offering figure of $15 less than two years before. A $28 million efficiency-improvement program was now in the works.

Charges of Price Fixing in 1997

In the spring of 1997 the U.S. Justice Department launched an investigation of the major graphite electrode makers for evidence of price fixing, with subpoenas issued to UCAR International, SGL Carbon, Carbide/Graphite Group, and two others. Executives of Carbide/Graphite were offered immunity from prosecution in exchange for their testimony before a grand jury in Philadelphia. The company also participated in the Department of Justice's Corporate Leniency Program with its promise of full cooperation in the ongoing investigation. Electrode prices had been escalating at a rate greater than inflation, and the U.S. Justice Department alleged that meetings had been held in which the companies agreed to raise prices, restrict manufacturing capacity, withhold technology from other competitors, and split up the world market among themselves.

On the heels of this probe, a group of U.S. steel manufacturers joined a class-action lawsuit against the top electrode companies, seeking damages for the alleged price fixing. In early 1998 Showa Denko Carbon of Japan agreed to pay a $29 million fine to the United States in an admission of guilt in the case, quickly followed by UCAR, which paid a record $110 million. UCAR also later settled a lawsuit brought by 27 steelmakers for $80 million.

Despite the investigation, Carbide/Graphite continued paying down its debt and arranged for $120 million in revolving credit, while initiating a $10 million stock repurchase program. The company also set aside $38 million for potential fine and lawsuit payments. In the aftermath of the antitrust investigation, sales of the company's electrodes began to taper off, mainly because of an influx of lower-cost imported steel, and Carbide/Graphite announced that it was expecting lower earnings figures for the foreseeable future. The company subsequently laid off 100 workers at its St. Mary's, Pennsylvania plant, closed its graphitizing and baking operations there, and postponed plans to spend $40 million to upgrade its Niagara Falls plant.

More bad news came in November 1998 when Dow Chemical Co. closed a magnesium production plant in Texas that used Carbide/Graphite-manufactured graphite anodes, thus canceling contracts worth $11 million to the company. A total of 230 additional layoffs, representing 20 percent of Carbide/Graphite's workforce, was announced in February 1999. Shortly after this, SGL Carbon AG agreed to pay a $145 million fine, eclipsing UCAR's as the largest in U.S. antitrust history. The amount included $10 million paid by SGL CEO Robert J. Koehler. By some accounts SGL had been the driving force in the price fixing conspiracy, and several SGL executives were given prison terms. SGL's U.S. operating unit had filed for bankruptcy protection the previous December.

Carbide/Graphite continued to soldier on, reducing inventory levels and further improving the efficiency of its operations. A total of 180 employees were temporarily laid off while this took place, but they were called back ahead of schedule. In the spring of 1999 a reorganization of the company's graphite electrode operations was begun in which several top executives were replaced, operations were consolidated, and 35 additional jobs were eliminated through an early retirement and severance program. Business conditions remained difficult, however, with electrode prices hitting a low of $1.13 a pound. Fiscal 2000 figures showed a loss of $9.7 million for the year, mainly attributed to costs associated with plant closings and an additional amount of money set aside for legal costs. A $30 million hydrosulfurization complex planned for the Seadrift coke plant was put on hold. By this time the company had paid out much of the money it had earmarked for lawsuit settlement costs, for an estimated 96 percent of its total liability. Other cases were still pending in Canada and Europe, and the company was cooperating with European investigations into the antitrust situation.

A joint venture was launched by Carbide/Graphite in 2000 with MetallpulverGesellschaft mbH & Co. KG of Austria. The 50/50 venture involved international magnesium production and utilized Carbide/Graphite's calcium carbide production capacity. Initial plans for the venture's purchase of Reactive Metals and Alloys Corp. were canceled, however. A second joint venture was formed with Pittsburgh-based Power Quality Systems, Inc. to jointly market electric-arc furnace efficiency optimization systems made by the two companies.

Although it was still recovering from the legal troubles of the late 1990s, Carbide/Graphite Group, Inc. was looking to the future with several new joint ventures and a more efficient, slimmed-down organization. The company's fortunes continued to rise and fall on the somewhat mercurial steel market, however, and the graphite electrode business, upon which Carbide/Graphite was still in large part dependent, appeared likely to remain erratic.

Principal Subsidiaries: C/G Specialty Products Management Corp.; Carbide/Graphite Management Corp.; Carbon/Graphite International.

Principal Competitors: Conoco, Inc.; Nippon Carbon Co., Ltd.; SGL Carbon AG; Showa Denko K.K.; Superior Graphite Co.; Tokai Carbon Co., Ltd.; UCAR International, Inc.

Further Reading:

• Boselovic, Len, 'Asia's Woes Dog Carbide/Graphite,' Pittsburgh Post-Gazette, July 25, 1999, p. F4.
• ------, 'Carbide/Graphite Lays Off 100 in Elk County,' Pittsburgh Post-Gazette, November 7, 1998, p. D1.
• ------, 'The Carbide/Graphite Group Stirs Up Steel Refining with Electrodes,' Pittsburgh Post-Gazette, June 1, 1997, p. C4.
• Burgert, Philip, and John E. Sacco, 'Investigators Probe Electrode Sales,' American Metal Market, June 9, 1997, p. 1.
• 'Electrode Suppliers Investigated for Price-Fixing,' New Steel, August 1, 1997, p. 14.
• Fox, Lauren, 'Graphite Electrode Makers Face Price-Fixing Probe,' Dow Jones News Service, June 5, 1997.
• Houser, Mark, 'Steelmakers Going Wild for Electric Furnaces,' Tribune Review, October 8, 1995, p. 1.
• 'IPO Spotlight Recommendation: Carbide/Graphite Group Buy,' Emerging & Special Situations, August 14, 1992, p. 8.
• 'Minimills Look to Recoup Overcharges for Electrodes,' Iron Age New Steel, October 1, 1998, p. 60.
• 'New Issues--Carbide/Graphite Group Avoid,' Emerging & Special Situations, September 18, 1995, p. 17.
• 'Price Fixing Fallout Tars Graphite Firms,' Pittsburgh-Post Gazette, February 24, 1998, p. E1.
• Sacco, John E., 'Carbide/Graphite Will Throttle Back Output,' American Metal Market, October 27, 1999, p. 1.
• ------, 'Exec Shake-Up Under Way at Carbide/Graphite Group,' American Metal Market, April 12, 2000, p. 3.
• Ward, Joe, 'Management Officials Buy Out BOC's Airco Carbide Division,' Courier-Journal, March 8, 1988, p. 8.

Source: International Directory of Company Histories, Vol. 40. St. James Press, 2001.

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