UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 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 March 31, 2000 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from _______ to _______
Commission file number 1-15903
CALGON CARBON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 25-0530110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 717, Pittsburgh, PA 15230-0717
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(Address of principal executive offices)
(Zip Code)
(412) 787-6700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
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
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
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Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 28, 2000
----------------------------- -----------------------------
Common Stock, $.01 par value 38,803,182 shares
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 2000
The Quarterly Report on Form 10-Q contains historical information and forward-
looking statements. Statements looking forward in time are included in this
Form 10-Q pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. They involve known and unknown risks and
uncertainties that may cause the Company's actual results in the future to
differ from performance suggested herein. A specific example of such
uncertainties include references to reductions in working capital. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in the Company's filings with the Securities and
Exchange Commission.
I N D E X
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PART 1 - FINANCIAL INFORMATION
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Item 1. Financial Statements
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Page
----
Introduction to the Financial Statements................ 2
Consolidated Statement of Income and
Retained Earnings....................................... 3
Consolidated Balance Sheet.............................. 4
Consolidated Statement of Cash Flows.................... 5
Selected Notes to Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Results
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of Operations and Financial Condition.................. 9
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PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.................................... 13
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Item 4. Submission of Matters to a Vote of Security Holders.. 13
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Item 6. Exhibits and Reports on Form 8-K..................... 13
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SIGNATURES......................................................... 14
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- 1 -
PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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INTRODUCTION TO THE FINANCIAL STATEMENTS
----------------------------------------
The consolidated financial statements included herein have been prepared by
Calgon Carbon Corporation (the Company), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the Company's consolidated financial statements and the
notes included therein for the year ended December 31, 1999.
The financial information presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The results for interim periods are not necessarily indicative of results to be
expected for the year.
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CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
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(Dollars in Thousands Except Per Share Data)
(Unaudited)
Three Months Ended
March 31,
------------------------
2000 1999
-------- --------
Net sales...................... $ 65,878 $ 71,792
-------- --------
Cost of products sold
(excluding depreciation)..... 41,425 45,682
Depreciation and amortization.. 5,301 5,981
Selling, general and
administrative expenses...... 12,796 12,751
Research and development
expenses..................... 1,761 1,867
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61,283 66,281
-------- --------
Income from operations......... 4,595 5,511
Interest income................ 42 12
Interest expense............... (1,191) (1,134)
Other income (expense)--net.... (588) (349)
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Income before income taxes
and minority interest........ 2,858 4,040
Provision for income taxes..... 1,033 1,455
-------- --------
Income before minority
interest..................... 1,825 2,585
Minority interest.............. 30 9
-------- --------
Net income..................... 1,855 2,594
Common stock dividends......... - (3,098)
Retained earnings, beginning
of period.................... 138,936 163,911
-------- --------
Retained earnings, end of
period....................... $140,791 $163,407
======== ========
Net income per common
share (basic and diluted).... $.05 $.07
======== ========
Weighted average shares
outstanding
Basic......................... 38,802,144 38,726,127
========== ==========
Diluted....................... 38,841,166 38,726,127
========== ==========
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
March 31, December 31,
2000 1999
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................... $ 8,456 $ 4,194
Receivables, (net of allowance of $3,669 and
$3,843)..................................... 53,496 58,886
Inventories................................... 43,342 44,368
Other current assets.......................... 8,046 9,032
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Total current assets....................... 113,340 116,480
Property, plant and equipment, net.............. 157,109 161,752
Intangibles..................................... 76,109 76,620
Other assets.................................... 7,784 7,288
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Total assets............................... $354,342 $362,140
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year............ $ 2,670 $ 4,604
Accounts payable and accrued liabilities...... 26,409 30,495
Restructuring reserve......................... 17,578 19,244
Payroll and benefits payable.................. 8,192 8,617
Accrued income taxes.......................... 5,060 2,396
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Total current liabilities.................. 59,909 65,356
Long-term debt.................................. 72,801 76,120
Deferred income taxes........................... 26,825 26,650
Other liabilities............................... 11,208 11,020
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Total liabilities.......................... 170,743 179,146
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Minority interest............................... 1,783 1,878
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Commitments and contingencies................... - -
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Shareholders' equity:
Common shares, $.01 par value, 100,000,000
shares authorized, 41,583,682 and
41,582,632 shares issued.................... 416 416
Additional paid-in capital.................... 63,377 63,371
Retained earnings............................. 140,791 138,936
Accumulated other comprehensive income........ 4,347 5,508
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208,931 208,231
Treasury stock, at cost, 2,780,500 shares..... (27,115) (27,115)
-------- --------
Total shareholders' equity................. 181,816 181,116
-------- --------
Total liabilities and
shareholders' equity..................... $354,342 $362,140
======== ========
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
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2000 1999
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Cash flows from operating activities
- ------------------------------------
Net income...................................... $ 1,855 $ 2,594
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................. 5,301 5,981
Employee benefit plan provisions.............. 540 600
Changes in assets and liabilities - net of
effects from purchase of businesses and
exchange:
(Increase) decrease in receivables......... 4,777 (328)
(Increase) decrease in inventories......... 372 (3,292)
Decrease in other current assets........... 958 160
(Decrease) in restructuring reserve........ (1,660) (748)
Increase (decrease) in accounts payable
and accruals.............................. 901 (550)
Increase in long-term deferred
income taxes (net)........................ 1,340 799
Other items--net.............................. (1,221) (364)
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Net cash provided by
operating activities...................... 13,163 4,852
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Cash flows from investing activities
- ------------------------------------
Purchase of businesses........................ - (566)
Property, plant and equipment expenditures.... (1,291) (2,775)
Proceeds from disposals of equipment.......... 77 319
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Net cash (used in) investing activities...... (1,214) (3,022)
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Cash flows from financing activities
- ------------------------------------
Net proceeds from (repayments of) borrowings.. (5,063) 2,411
Treasury stock purchases...................... - (129)
Common stock dividends........................ (1,940) (3,105)
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Net cash (used in) financing
activities................................ (7,003) (823)
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Effect of exchange rate changes on cash......... (684) (77)
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Increase in cash and cash equivalents........... 4,262 930
Cash and cash equivalents, beginning
of period..................................... 4,194 1,325
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Cash and cash equivalents, end of period........ $ 8,456 $ 2,255
======= =======
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Dollars in Thousands)
(Unaudited)
1. Reclassifications: Certain reclassifications have been made to the 1999
financial statements to conform to the 2000 presentation.
2. Inventories:
March 31, 2000 December 31, 1999
--------------- ------------------
Raw materials $ 9,589 $ 9,453
Finished goods 33,753 34,915
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$43,342 $44,368
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3. Supplemental Cash Flow Information:
Three Months Ended March 31,
----------------------------
2000 1999
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Cash paid during the period for:
Interest $ 913 $ 1,242
Income taxes, (net of refunds) $(1,758) $ 325
======= =======
Bank debt:
Borrowings $ 2,167 $ 4,363
Repayments (7,230) (1,952)
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Net proceeds from (repayments of)
borrowings $(5,063) $ 2,411
======= =======
4. No common stock dividends were declared during the quarter ended March 31,
2000. Common stock dividends declared during the quarter ended March 31,
1999 were $.08 per common share. Common stock dividends in the amount of
$.05 per common share were declared on April 18, 2000.
5. Comprehensive Income:
Three Months Ended March 31,
----------------------------
2000 1999
Net income $ 1,855 $ 2,594
Other comprehensive
(loss), net of (tax benefit)
of ($625) and ($1,371),
respectively (1,161) (2,546)
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Comprehensive income $ 694 $ 48
======= =======
The only matter contributing to the other comprehensive (loss) was the currency
translation adjustment.
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6. Segment Information:
Prior to January 1, 2000, the Company had two reportable segments: Activated
Carbon and Engineered Systems. Each of these segments produced, designed and
marketed products and services specifically developed for the purification,
separation and concentration of liquids and gases and both sold to the same
markets.
The Company, as a result of a new strategy to transform the Company from a
product to a service and solutions provider, has changed the structure of its
internal organization in a manner that causes the composition of its
reportable segments to change. As a result, the Company has four reportable
segments: Activated Carbon, Service, Engineered Solutions and Consumer
Health. These reportable segments are comprised of strategic business units
which offer different products and services. The Company evaluates segment
performance based primarily on economic profit (as defined by the Company)
and operating income.
The Activated Carbon segment manufactures granular activated carbon for use
in applications to remove organic compounds from liquids, gases, water and
air. The Service segment consists of reactivation of spent carbon and the
leasing, monitoring and maintenance of mobile carbon adsorption equipment.
The Engineered Solutions segment provides solutions to customer's air and
water process problems through the design, fabrication and operation of
systems that utilize a combination of the Company's enabling technologies:
carbon adsorption, ultraviolet light and advanced ion exchange separation.
The Consumer Health segment brings the Company's industrial purification
technologies directly to the consumer in the form of products and services.
The Company has restated the segment information for March 31, 1999, to
conform to the 2000 presentation.
Three Months Ended March 31,
----------------------------
2000 1999
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Net Sales
Activated Carbon $32,138 $34,020
Service 22,091 24,348
Engineered Solutions 7,300 8,969
Consumer Health 4,349 4,455
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$65,878 $71,792
======= =======
Income (loss) from operations
before amortization
Activated Carbon $ 3,512 $ 2,994
Service 3,518 4,051
Engineered Solutions (1,352) (554)
Consumer Health (511) (392)
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5,167 6,099
Reconciling items
Amortization of intangibles
and organization costs (572) (588)
Interest income 42 12
Interest expense (1,191) (1,134)
Other expense - net (588) (349)
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Consolidated income before
income taxes and
minority interest $ 2,858 $ 4,040
======= =======
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March 31, 2000 December 31, 1999
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Total Assets
Activated Carbon $155,588 $162,736
Service 91,713 89,064
Engineered Solutions 87,425 90,672
Consumer Health 19,616 19,668
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$354,342 $362,140
======== ========
7. Litigation
On April 18, 2000, the Company and Trojan Technologies, Inc. announced a
settlement agreement for ongoing litigation in Canada and the U.S. with
respect to products made and sold for UV disinfection of municipal
wastewater. The effects of this settlement were not material to the financial
condition or operations of the Company. Final closing of the settlement
agreement is completed.
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Item 2. Management's Discussion and Analysis of Results of
- ------ --------------------------------------------------
Operations and Financial Condition
----------------------------------
This discussion should be read in connection with the information contained
in the Consolidated Financial Statements and Selected Notes to Financial
Statements.
Results of Operations
- ---------------------
Consolidated net sales for the three months ended March 31, 2000 decreased
by $5.9 million or 8.2%. (An analysis of sales by segment can be found in Note
6 of Selected Notes to Financial Statements.) Sales to the activated carbon
segment decreased by $1.9 million or 5.5% versus the three-month period ended
March 31, 1999, primarily due to a combination of net losses due to foreign
exchange rate changes associated with the strengthening of the U.S. dollar
versus the Belgian franc and German deutche mark, partially offset by its
weakening compared to the Japanese yen, the deferral of several large orders to
the second quarter and losses associated with exiting of unprofitable business
areas. Sales to the service segment were below the first quarter of 1999 by
$2.3 million or 9.3% due to losses associated with foreign exchange rate changes
in Europe, as stated previously, the non-recurring of activity at a major
customer and the non-repeat of emergency related sales of temporary systems that
occurred in 1999. Revenues associated with the engineered solutions segment
declined by $1.7 million or 18.6% due to lower orders in Europe. Sales to the
consumer health segment were down by $.1 million or 2.4% versus the comparable
period in 1999. Overall the Company's sales decrease was the effect of net
losses associated with foreign exchange rate changes of $1.8 million and volume
losses.
Gross profit, before depreciation, as a percentage of net sales was 37.1% for
the three months ended March 31, 2000. This compares to 36.4% for the three
months ended March 31, 1999. This .7 percentage point improvement was primarily
the result of the implementation of cost reduction programs at the Company's
North American manufacturing facilities but also reflects the aforementioned
exiting of unprofitable business areas.
The depreciation and amortization decrease of $.7 million during the three
months ended March 31, 2000 versus the three months ended March 31, 1999 was
related to fourth quarter 1999 asset write-offs that were primarily included in
the restructuring charge.
Combined, selling, general and administrative expenses and research and
development expenses were flat. This result was the net effect of cost
reduction actions taken in the fourth quarter of 1999, which were primarily
related to the restructuring, offset by costs associated with the establishment
of the Pittsburgh, Pennsylvania center of excellence, which is part of the
Company's new strategy, and management termination costs in Europe.
Interest expenses for the three month periods ended March 31, 2000 and March 31,
1999 were consistent. This was the net of a reduced debt level and increased
interest rates.
The effective tax rate for the three month period ended March 31, 2000 was 36.1%
versus an effective tax rate of 36.0% for the similar period in 1999.
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Financial Condition
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Working Capital and Liquidity
-----------------------------
Cash flows from operating activities were $13.2 million for the three months
ended March 31, 2000 versus $4.9 million for the comparable 1999 period. The
$8.3 million improvement was primarily related to reduced investment in working
capital in the 2000 period versus an increase in the 1999 period. The Company
intends to continue to reduce its investment in working capital by more
attention to monies owed by customers and more efficient usage of its enterprise
computer system.
Common stock dividends paid during the three month period ended March 31, 2000
represent $.05 per common share while the payment in the comparable 1999 period
represented $.08 per common share.
Total debt at March 31, 2000 was $75.5 million, a decrease, including exchange,
of $5.3 million from December 31, 1999.
The Company expects that cash from operating activities plus cash balances and
available external financing will be sufficient to meet its requirements.
The Company has a $125.0 million credit facility consisting of an $86.8 million
five-year revolving credit facility expiring in May 2004 and a $38.2 million
364-day revolving credit facility expiring in May 2000. Included in this
facility is a letter of credit subfacility which may not exceed $30.0 million.
At March 31, 2000 there were no borrowings outstanding under the 364-day
revolving credit agreement which management is currently negotiating to extend.
Restructuring of Operations
- ---------------------------
During the fourth quarter of 1999, the Company adopted a strategy aimed at
lowering costs to serve the activated carbon markets, investing to grow its
service and solutions businesses and repositioning its proven technologies to
bring more value to consumers. In order to achieve these goals, the Company has
been reorganized as a globally integrated business with emphasis on becoming a
service business.
As part of this strategy, three activated carbon production lines will be shut
down and dismantled. One of these lines is at the Feluy, Belgium location,
another is at Neville Island, Pennsylvania and the third is at the Company's Big
Sandy, Kentucky facility. Associated with cessation of activated carbon
production activity at the Feluy plant will be the transfer of office activity
from its current location in Brussels, Belgium to the plant. This will allow
formation of a center of excellence at Feluy for the growth of the service
business. Operations at several other locations will be consolidated to gain
global productivity and centralized processes to promote corporate-wide sharing
of technical, operational and financial information. Included in this
consolidation will be the transfer of production and administration activities
from Markham, Ontario, Canada and Lakeland, Florida to Pittsburgh, Pennsylvania
to form a center of excellence for engineered solutions. With the exception of
asset write-offs, these restructuring charges will require cash outlays. The
implementation was begun in December 1999 and is expected to be completed before
the end of the
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third quarter of 2000 with minor contractual cash outlays being deferred through
the second quarter of 2001. The number of employee separations from this
restructuring is expected to be at least 147. These separations will occur
primarily at the locations impacted by the strategy and will be spread evenly
between plant personnel and administrative positions. Additional hires will
result in a net staff reduction of at least 120 positions. Separations through
March 31, 2000 were 55.
In the third quarter of 1998, the Company initiated a worldwide plan to reduce
costs and realign the organizational structure. The implementation was begun in
September 1998 and is essentially completed. Major contractual cash outlays
will be made in the second quarter of 2000 and others may continue during the
balance of the year. With the exception of the asset write-offs, these
restructuring charges required cash outlays. The number of planned employee
separations from this restructuring was 131. All separations have been
completed and were in line with the plan.
The restructuring reserve activity for the three months ended March 31, 2000
was:
Balance Balance
($000) 1-1-00 Payments 3-31-00
------- -------- -------
1999 Plan
- ---------
Employee severance and
termination benefit costs $13,062 $(1,114) $ 11,948
Other costs 4,882 (493) 4,389
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17,944 (1,607) 16,337
------- ------- --------
1998 Plan
- ---------
Employee severance and
termination benefit costs 1,091 (24) 1,067
Other costs 209 (35) 174
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1,300 (59) 1,241
------- ------- --------
$19,244 $(1,166) $ 17,578
======= ======= ========
The reserve balances are deemed adequate.
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Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment totaled $1.3 million
for the three-month period ended March 31, 2000 compared to expenditures of $2.8
million for the same period in 1999. The decrease was primarily due to the non-
repeating of expenditures associated with the recently implemented business
information system. Total capital expenditures are currently expected to be
approximately $15.0 million for the year 2000.
The purchase of business expenditures for the period ended March 31, 1999,
represents the continuation of previously accrued cash expenditures for Advanced
Separation Technologies (a 1996 acquisition) project failures for projects
completed before the acquisition.
Year 2000
- ---------
The Company encountered no unusual problems during the rollover to the Year
2000. To date, no Year 2000-related problems have been encountered with third
parties. Until all processes and systems are run in production for the first
time after the rollover and through the year, there is the potential for date-
related problems. The Company plans to continue monitoring its processes and
systems to ensure dates and date-related information continue to be processed
correctly.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This new standard requires recognition of
all derivatives as either assets or liabilities at fair value. This new
standard may result in additional volatility in both current period earnings and
other comprehensive income as a result of recording recognized and unrecognized
gains and losses resulting from changes in the fair value of derivative
instruments. At adoption, this new standard requires a comprehensive review of
all outstanding derivative instruments to determine whether or not their use
meets the hedge accounting criteria. It is possible that there will be
derivative instruments employed in our businesses that do not meet all of the
designated hedge criteria and they will be reflected in income on a mark-to-
market basis. Based upon the strategies currently used by the Company and the
level of activity related to forward exchange contracts and commodity-based
derivative instruments in recent periods, the Company does not anticipate the
effect of adoption to have a material impact on either financial position or
results of operations. The effective date of SFAS No. 133 was amended by SFAS
No. 137. The Company plans to adopt the standard effective January 1, 2001, as
required.
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PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------ -----------------
On April 18, 2000, the Company and Trojan Technologies, Inc.
(TSE/TUV)announced that they have reached a settlement of ongoing
litigation in Canada and the U.S. with respect to products made and sold
for UV disinfection of municipal wastewater. Final closing of the
settlement agreement is completed.
The Company will continue to focus its efforts on the use of UV oxidation
and disinfection technology for the treatment of water, but has agreed to
cease the manufacture and sale of the AuroraTM UV disinfection system.
Impact of the settlement and litigation costs incurred in this fiscal
year will not be material to the financial statements.
The agreement will allow both companies to focus on growing their
respective businesses. TSE/TUV and the Company are extremely pleased to
have reached this agreement, which brings to conclusion a costly and
distracting litigation process. The parties have agreed to terminate all
litigation.
Because the parties have agreed that the terms of the agreement are
confidential, no further comment, beyond that contained in the press
release, can be forthcoming from the parties.
The effects of this settlement were not material to the financial
conditions or operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(c) Exhibits
None
(d) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended March 31,
2000.
- 13 -
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGON CARBON CORPORATION
-------------------------
(REGISTRANT)
Date: May 11, 2000 By /s/William E. Cann
---------------------------------
William E. Cann
Senior Vice President,
Chief Financial Officer
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