| Commitments and Contingencies | 11 . Commitments and Contingenc ies
Waterlink
In conjunction with the February 2004 purchase of substantially all of Waterlink Inc.’s (Waterlink) operating assets and the stock of Waterlink’s U.K. subsidiary, environmental studies were performed on Waterlink’s Columbus, Ohio property by environmental consulting firms that provided an identification and characterization of certain areas of contamination. In addition, these firms identified alternative methods of remediating the property and prepared cost evaluations of the various alternatives. The Company concluded from the information in the studies that a loss at this property was probable and recorded the liability. As of September 30, 2015 and December 31, 2014, the balances recorded were $0.1 million and $0.1 million as a component of accounts payable and accrued liabilities and $0.3 million and $0.4 million as a component of accrued pension and other liabilities, respectively. Liability estimates are based on an evaluation of, among other factors, currently available facts, existing technology, presently enacted laws and regulations, and the remediation experience of experts in groundwater remediation. It is possible that a further change in the estimate of this obligation will occur as remediation progresses. Remediation activities are ongoing and are currently expected to be completed by the end of 2016.
Carbon Imports
General Anti-Dumping Background: In March 2006, the Company and another U.S. producer of activated carbon (collectively, the “Petitioners”) requested that the U.S. Department of Commerce (Commerce Department) investigate unfair pricing of certain thermally activated carbon imported from the People’s Republic of China (China). In 2007, the Commerce Department found that imports of the subject merchandise from China were being unfairly priced (or “dumped”). Following a finding by the U.S. International Trade Commission (ITC) that the domestic industry was injured by unfairly traded imports of activated carbon from China, the Commerce Department issued an anti-dumping order imposing tariffs on Chinese imports to offset the amount of the unfair pricing. The Commerce Department published the antidumping order in the Federal Register in April 2007, and all imports from China remain subject to it. Importers of subject activated carbon from China are required to make cash deposits of estimated anti-dumping duties at the time the goods are entered into the U.S. customs territory. Final assessment of duties and duty deposits are subject to revision based on annual retrospective reviews conducted by the Commerce Department.
The Company is a domestic producer, exporter from China (through its wholly-owned subsidiary Calgon Carbon (Tianjin) Co., Ltd. (Calgon Carbon Tianjin)), and a U.S. importer of the activated carbon that is subject to the anti-dumping order. As such, the Company’s involvement in the Commerce Department’s proceedings is both as a domestic producer (a “petitioner”) and as a foreign exporter (a “respondent”).
The Company’s role as an importer, which has in the past (and may in the future) required it to pay anti-dumping duties, results in a contingent liability related to the final amount of tariffs that are ultimately assessed on the imported product following the Commerce Department’s annual review of relevant shipments and calculation of the anti-dumping duties due. As a result of proceedings before the Commerce Department that concluded in October 2015, the Company is currently required to post a duty of $0.476 per pound when importing activated carbon from Calgon Carbon Tianjin into the U.S. The impact of the tariffs to the Company’s financial results was not material for the nine months ended September 30, 2015 and 2014, respectively. However, the Company’s ultimate assessment rate and future cash deposit rate on such imports could change in the future, as a result of on-going proceedings before the Commerce Department.
As part of its standard process, the Commerce Department conducts annual reviews of sales made to the first unaffiliated U.S. customer, typically over the prior 12-month period. These reviews will be conducted for at least five years subsequent to a determination by the ITC in February 2013, finding that the anti-dumping duty order should remain in effect. These reviews can result in changes to the anti-dumping tariff rate (either increasing or reducing the rate) applicable to any foreign exporter. Revision of tariff rates has two effects. First, it will alter the actual amount of tariffs that U.S. Customs and Border Protection (Customs) will collect for the period reviewed, by either collecting additional duties above those deposited with Customs by the U.S. importer at the time of entry or refunding a portion of the duties deposited at the time of importation to reflect a decline in the margin of dumping. If the actual amount of tariffs owed increases, Customs will require the U.S. importer to pay the difference, plus interest. Conversely, if the tariff rate decreases, any difference will be refunded by Customs to the U.S. importer with interest. Second, the revised rate becomes the cash deposit rate applied to future entries, and can either increase or decrease the amount of duty deposits an importer will be required to post at the time of importation.
There have been eight periods of review since the anti-dumping order was published in 2007. Periods of Review (POR) I, II, and V, related to the periods that ended on March 31, 2008, 2009, and 2012, respectively, are final and not subject to further review or appeal. A summary of the proceedings in the remaining PORs follows below.
Period of Review III: On October 31, 2011, the Commerce Department published the final results of its third annual administrative review, which covers imports that entered the U.S. between April 1, 2009 and March 31, 2010 (POR III). Based on the POR III results, the Company’s ongoing duty deposit rate was adjusted to zero. The Company recorded a receivable of $1.1 million reflecting expected refunds for duty deposits made during POR III as a result of the announced decrease in the POR III assessment rate. The Commerce Department continued to assign cooperative respondents involved in POR III a deposit rate of $0.127 per pound.
In early December 2011, several separate rate respondents appealed the Commerce Department’s final results of POR III. Following the submission of briefs by the parties, the Court of International Trade (Court) remanded the case to the Commerce Department for further analysis. On January 9, 2014, the Commerce Department filed its remand redetermination with the Court, and continued to calculate a zero duty for the Company during POR III. In addition, the Commerce Department revised its earlier determination and assigned a zero margin as a separate rate to several Chinese producers/exporters of steam activated carbon to the U.S. that were not subjected to an individual investigation. The Company contested this aspect of the Commerce Department’s redetermination. On November 24, 2014, the Court affirmed the Commerce Department’s remand determination. Various parties involved in this review, including the Company, have appealed the decision to the United States Court of Appeals for the Federal Circuit (Court of Appeals). Briefing on this appeal will be occurring throughout 2015, and a decision from the Court of Appeals is possible in late 2015 or early 2016.
Period of Review IV: On November 9, 2012, the Commerce Department published the final results of its fourth administrative review, which covers imports of thermally activated carbon from China that entered the U.S. between April 1, 2010 and March 31, 2011 (POR IV). The Commerce Department calculated anti-dumping margins for the mandatory respondents it examined ranging from $0.20 per pound to $0.96 per pound, and it calculated an anti-dumping margin of $0.47 per pound for the separate rate respondents whose shipments of activated carbon to the U.S. were not individually reviewed. The Company, as a Chinese exporter and a U.S. importer, elected not to participate as a respondent in this administrative review. By not participating as a respondent in the review, the Company’s tariff deposits made at a rate of 14.51% during POR IV became final and are not subject to further adjustment. The Company’s ongoing deposit rate continued to be zero, as a result of the company-specific rate calculated in POR III. Appeals challenging the Commerce Department’s final results for POR IV were commenced before the Court, and the Court issued a decision on June 24, 2014 that sustained the Commerce Department’s final results in their entirety. An appeal of this decision was filed with the Court of Appeals by various respondent parties. The Company participated in the proceedings before the Court of Appeals and supported the affirmance of the Commerce Department’s final results in POR IV. A decision by the Court of Appeals on the Chinese exporters’ challenges was issued on August 3, 2015 affirming the Commerce Department’s final results. While the various respondent parties could petition the United States Supreme Court to review the decision, the Company believes that it is unlikely that the decision will be altered.
Period of Review VI: On November 19, 2014, the Commerce Department announced the final margins for its sixth administrative review (POR VI), which covers imports that entered the U.S. between April 1, 2012 and March 31, 2013. The Commerce Department calculated a margin of $0.018 per pound for both mandatory and separate rate respondents, and $1.10 per pound for the China wide rate. Calgon Carbon Tianjin was assigned a margin of $0.018 per pound as it was considered a separate rate respondent. In December 2014, an appeal was commenced challenging the final results of the sixth administrative review. Briefing will take place on this appeal throughout the fourth quarter of 2015, and a decision by the Court is possible in the fourth quarter of 2015 or early in 2016.
Period of Review VII: On April 1, 2014, the Commerce Department published a notice allowing parties to request a seventh annual administrative review of the anti-dumping duty order covering the period April 1, 2013 through March 31, 2014 (POR VII). The Commerce Department selected two mandatory respondents to be reviewed. The preliminary results of the Commerce Department’s review of POR VII were announced on April 30, 2015, with the margins ranging from $0.00 per pound to $0.24 per pound for mandatory respondents, $0.24 per pound for separate rate respondents, and $1.10 per pound for the China wide rate. Calgon Carbon Tianjin was preliminarily assigned a margin of $0.24 per pound, as it was considered a separate rate respondent. The Commerce Department announced the final results for POR VII on October 5, 2015. The Commerce Department calculated anti-dumping margins for the mandatory respondents it examined ranging from $0.00 per pound to $0.476 per pound, and it calculated an anti-dumping margin of $0.476 per pound for the separate rate respondents whose shipments of activated carbon to the U.S. were not individually reviewed. The Company, as a Chinese exporter and a U.S. importer, received the separate rate of $0.476 per pound. The impact of the revised tariffs to the Company’s financial results is not material. In October 2015, an appeal by one of the mandatory respondents was commenced challenging the final results of the seventh administrative review.
Period of Review VIII : On April 1, 2015, the Commerce Department published a notice allowing parties to request an eighth annual administrative review of the anti-dumping duty order covering the period April 1, 2014 through March 31, 2015 (POR VIII). Petitioners and other parties submitted requests for administrative reviews to the Commerce Department in April 2015. The Commerce Department initiated POR VIII in May 2015, and has selected two mandatory respondents for review. Based on the agency’s practice in prior administrative reviews, the Company anticipates that the Commerce Department will announce the final results of its administrative review for POR VIII in October or November 2016.
Big Sandy Plant
By letter dated January 22, 2007, the Company received from the United States Environmental Protection Agency (EPA) Region 4 a report of a hazardous waste facility inspection performed by the EPA and the Kentucky Department of Environmental Protection (KYDEP) as part of a Multi Media Compliance Evaluation of the Company’s Big Sandy Plant in Catlettsburg, Kentucky that was conducted on September 20 and 21, 2005. Accompanying the report was a Notice of Violation (NOV) alleging multiple violations of the Federal Resource Conservation and Recovery Act (RCRA) and corresponding EPA and KYDEP hazardous waste regulations as well as the Clean Water Act (CWA). The alleged violations mainly concerned the Company’s hazardous waste spent activated carbon regeneration facility. In the fall of 2013, the Company, the EPA, and the United States Department of Justice (DOJ) signed and delivered a consent decree which the Court ordered effective on January 29, 2014. As part of the consent decree, the Company paid a civil penalty of $1.6 million on February 24, 2014, but makes no admissions of any violations. The Company had previously accrued for this penalty.
The Company was required under the consent decree to conduct testing of the portion of stockpiled material dredged from onsite wastewater treatment lagoons that had not previously been tested in accordance with a pre-approved work plan and has installed two ground water monitoring wells at the Company’s permitted solid waste landfill where some lagoon solids had previously been disposed. The consent decree provides that EPA and DOJ agree that such landfill is to be considered a non-hazardous facility and regulated by KYDEP. The testing of the stockpile material was completed in the second quarter of 2014 and the results have been reviewed by the EPA. The Company received comments from the EPA including a request for a health and safety risk assessment similar to that which the Company performed on other materials from the lagoons. The Company has prepared this assessment and it has been accepted by the EPA. Finally, the Company will not be required to close or retrofit any of the wastewater treatment lagoons as RCRA hazardous waste management units and may continue to use them in their current manner. The Company will be subject to daily stipulated penalties for any failure to conduct the required testing of the previously untested stockpile or to install and sample the landfill wells in accordance with the EPA-approved protocols and schedules. The balance as of December 31, 2014 of $0.1 million recorded as a component of accounts payable and accrued liabilities was utilized as of September 30, 2015.
Multi-employer Pension Plan
The Company participates in a multi-employer plan in Europe which almost entirely relates to former employees of operations it has divested. Benefits are distributed by the multi-employer plan. In 2012 the Company learned that the multi-employer plan had previously elected to reduce benefits to entitled parties, and the local Labor Court had concluded that an employer was required to compensate its pensioners for the shortfall if benefits had been reduced by the plan. As a result, the Company accrued a liability for the past shortfall to its former employees, and the Company has had several claims from pensioners seeking compensation for the shortfall. In 2014 the Company also learned that certain pensioners are claiming that the employers should also pay a cost of living adjustment on the amounts paid by the multi-employer plan. In February 2015, the Court published an opinion ruling that employers may be required to pay a cost of living adjustment. As a result, t he Company recorded an additional accrual of $0.4 million for the year ended December 31, 2014. As of September 30, 2015 and December 31, 2014, respectively, the Company has a $0.9 million liability recorded as a component of payroll and benefits payable within its condensed consolidated balance sheets for the past shortfall adjustments to its former employees. The Company cannot predict if future benefit payments to entitled parties to be made by the multi-employer plan will continue to be reduced.
Other
In addition to the matters described above, the Company is involved in various other legal proceedings, lawsuits and claims, including employment, product warranty and environmental matters of a nature considered normal to its business. It is the Company’s policy to accrue for amounts related to these legal matters when it is probable that a liability has been incurred and the loss amount is reasonably estimable. Management is currently unable to estimate the amount or range of reasonably possible losses, if any, resulting from such lawsuits and claims. |
