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 September 30, 2001 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
- --------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 717, Pittsburgh, PA 15230-0717
----------------------------------------
(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 October 31, 2001
- --------------------------------- -------------------------------
Common Stock, $.01 par value 38,810,934 shares
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED September 30, 2001
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 includes 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 Page
------ ----
Introduction to the Financial Statements................................... 2
Consolidated Statements of Income and
Retained Earnings.......................................................... 3
Consolidated Balance Sheets................................................ 4
Consolidated Statements of Cash Flows...................................... 5
Selected Notes to Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Results
------ -----------------------------------------------
of Operations and Financial Condition...................................... 10
-------------------------------------
PART II - OTHER INFORMATION
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Item 1. Legal Proceedings.......................................................... 14
------ -----------------
Item 6. Exhibits and Reports on Form 8-K........................................... 14
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SIGNATURES ...................................................................... 15
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1
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
INTRODUCTION TO THE FINANCIAL STATEMENTS
----------------------------------------
The unaudited interim 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.
Management of the Company believes that the disclosures are adequate to make the
information presented not misleading when read in conjunction with the Company's
audited consolidated financial statements and the notes included therein for the
year ended December 31, 2000.
In management's opinion, the unaudited interim consolidated financial
statements reflect all adjustments, which are of a normal and recurring nature,
which are necessary for a fair presentation, in all material respects, of
financial results for the interim periods presented. Operating results for the
first nine months of 2001 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2001.
2
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ....................................................... $ 64,743 $ 64,275 $ 206,560 $ 202,349
------------ ------------ ------------ ------------
Cost of products sold
(excluding depreciation) ...................................... 44,429 41,263 137,610 127,796
Depreciation and amortization ................................... 5,023 5,067 14,997 15,635
Selling, general and
administrative expenses ....................................... 10,648 10,773 33,938 35,667
Research and development
expenses ...................................................... 1,369 1,847 4,242 5,495
------------ ------------ ------------ ------------
61,469 58,950 190,787 184,593
------------ ------------ ------------ ------------
Income from operations .......................................... 3,274 5,325 15,773 17,756
Interest income ................................................. 119 2 169 98
Interest expense ................................................ (746) (1,280) (2,837) (3,733)
Other income (expense)--net ..................................... (231) (1,392) (922) (2,352)
------------ ------------ ------------ ------------
Income before income taxes
and minority interest ......................................... 2,416 2,655 12,183 11,769
Provision for income taxes ...................................... 870 956 4,386 4,246
------------ ------------ ------------ ------------
Income before minority interest ................................. 1,546 1,699 7,797 7,523
Minority interest ............................................... - (134) (53) (244)
------------ ------------ ------------ ------------
Net income ...................................................... 1,546 1,565 7,744 7,279
Common stock dividends .......................................... (1,940) (1,940) (5,820) (3,880)
Re-issuance of treasury stock at
less than cost ................................................ - (8) - (8)
Retained earnings, beginning
of period ..................................................... 145,277 142,710 142,959 138,936
------------ ------------ ------------ ------------
Retained earnings, end of
period ........................................................ $ 144,883 $ 142,327 $ 144,883 $ 142,327
============ ============ ============ ============
Net income per common
share (basic and diluted) ..................................... $ .04 $ .04 $ .20 $ .19
============ ============ ============ ============
Weighted average shares outstanding
Basic ......................................................... 38,810,934 38,812,013 38,804,885 38,806,428
============ ============ ============ ============
Diluted ....................................................... 39,174,758 38,937,897 39,090,855 38,875,115
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
3
CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEETS
---------------------------
(Dollars in Thousands except share data)
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ................................................ $ 3,555 $ 4,334
Receivables, (net of allowance of $2,612 and $2,633) ..................... 47,954 50,906
Inventories .............................................................. 41,001 36,938
Other current assets ..................................................... 14,573 11,907
--------- ---------
Total current assets .................................................. 107,083 104,085
Property, plant and equipment, net ......................................... 145,448 151,350
Intangibles ................................................................ 73,990 74,308
Other assets ............................................................... 9,417 9,897
--------- ---------
Total assets .......................................................... $ 335,938 $ 339,640
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt .......................................................... $ 9,692 $ 9,120
Long-term debt due within one year ....................................... 1,849 10,180
Accounts payable and accrued liabilities ................................. 25,588 26,975
Restructuring reserve .................................................... 1,619 3,298
Payroll and benefits payable ............................................. 7,555 8,613
Accrued income taxes ..................................................... 5,286 5,193
--------- ---------
Total current liabilities ............................................. 51,589 63,379
Long-term debt ............................................................. 55,463 48,077
Deferred income taxes ...................................................... 29,559 29,462
Other liabilities .......................................................... 13,487 11,789
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Total liabilities ..................................................... 150,098 152,707
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Minority interest .......................................................... - 1,944
--------- ---------
Commitments and contingencies .............................................. - -
--------- ---------
Shareholders' equity:
Common shares, $.01 par value, 100,000,000 shares
authorized, 41,589,892 and 41,589,067 shares issued ................... 416 416
Additional paid-in capital ............................................... 63,474 63,410
Retained earnings ........................................................ 144,883 142,959
Accumulated other comprehensive income ................................... 4,197 5,335
--------- ---------
212,970 212,120
Treasury stock, at cost, 2,787,458 shares ................................ (27,130) (27,131)
--------- ---------
Total shareholders' equity ............................................ 185,840 184,989
--------- ---------
Total liabilities and shareholders' equity ............................ $ 335,938 $ 339,640
========= =========
The accompanying notes are an integral part
of these financial statements
4
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
-----------------------
2001 2000
-------- --------
Cash flows from operating activities
- ------------------------------------
Net income ........................................................................ $ 7,744 $ 7,279
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................................... 14,997 15,635
Employee benefit plan provisions ................................................ 1,447 926
Changes in assets and liabilities - net of
effects from purchase of minority interest in Calgon
Far East Co. Ltd. and exchange rate:
Decrease in receivables .................................................... 2,617 6,102
(Increase) decrease in inventories ......................................... (4,445) 1,417
(Increase) decrease in other current assets ................................ (2,695) 76
Decrease in restructuring reserve .......................................... (1,552) (12,811)
(Decrease) in accounts payable
and accruals .............................................................. (2,194) (1,157)
Increase in long-term deferred
income taxes (net) ........................................................ 202 4,064
Other items - net ............................................................... 467 93
-------- --------
Net cash provided by operating activities ..................................... 16,588 21,624
-------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of minority interest in Calgon Far East Co. Ltd. ....................... (3,400) -
Property, plant and equipment expenditures ...................................... (8,407) (6,665)
Proceeds from disposals of equipment ............................................ 551 139
-------- --------
Net cash (used in) investing activities ....................................... (11,256) (6,526)
-------- --------
Cash flows from financing activities
- ------------------------------------
Net proceeds from (repayments of) borrowings .................................... 96 (7,754)
Common stock dividends .......................................................... (5,820) (5,820)
Other ........................................................................... - (8)
-------- --------
Net cash (used in) financing activities ....................................... (5,724) (13,582)
-------- --------
Effect of exchange rate changes on cash ........................................... (387) (601)
-------- --------
Increase (decrease) in cash and cash equivalents ................................. (779) 915
Cash and cash equivalents, beginning
of period ....................................................................... 4,334 4,194
-------- --------
Cash and cash equivalents, end of period .......................................... $ 3,555 $ 5,109
======== ========
The accompanying notes are an integral part
of these financial statements.
5
CALGON CARBON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Dollars in Thousands)
(Unaudited)
1. Inventories:
September 30, 2001 December 31, 2000
------------------ -----------------
Raw materials $ 7,510 $ 5,595
Finished goods 33,491 31,343
------- --------
$41,001 $ 36,938
======= ========
2. Supplemental Cash Flow Information:
Nine Months Ended September 30,
-------------------------------
2001 2000
----------- ----------
Cash paid during the period for:
Interest $ 2,889 $ 3,758
Income taxes paid (refunded) - net $ 1,113 $ ( 1,022)
======== =========
Bank debt:
Borrowings $ 20,921 $ 6,466
Repayments (20,825) (14,220)
-------- ---------
Net proceeds from (repayments of) bank debt $ 96 $ (7,754)
======== =========
3. Common stock dividends of $.05 per common share were declared during the
quarter ended September 30, 2001. Common stock dividends declared during
the quarter ended September 30, 2000 were $.05 per common share. Common
stock dividends in the amount of $.05 per common share were declared on
October 29, 2001.
4. Comprehensive income (loss):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
2001 2000 2001 2000
------- ------- ------- -------
Net income $ 1,546 $ 1,565 $ 7,744 $ 7,279
Other comprehensive income (loss)
net of tax provision (benefit)
of $82, ($872), $132
and ($1,592) respectively 1,890 (1,620) (1,138) (2,957)
------- ------- ------- -------
Comprehensive income (loss) $ 3,436 $ (55) $ 6,606 $ 4,322
======= ======= ======= =======
The only matter contributing to the other comprehensive income (loss) was the
foreign currency translation adjustment.
6
5. Segment Information:
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 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
and also includes charcoal products.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Net Sales
Activated Carbon $ 25,074 $ 31,746 $ 81,915 $ 95,390
Service 23,476 20,662 71,000 67,157
Engineered Solutions 11,305 7,972 37,034 22,574
Consumer Health 4,888 3,895 16,611 17,228
--------- --------- --------- ---------
$ 64,743 $ 64,275 $ 206,560 $ 202,349
========= ========= ========= =========
Income (loss) from operations
before depreciation and amortization
Activated Carbon $ 3,043 $ 6,894 $ 11,884 $ 19,825
Service 4,825 4,117 17,233 15,492
Engineered Solutions 483 482 2,469 (1,552)
Consumer Health (54) (1,101) (816) (374)
--------- --------- --------- ---------
8,297 10,392 30,770 33,391
Depreciation and amortization
Activated Carbon 2,166 2,406 6,583 7,502
Service 1,852 1,951 5,343 5,125
Engineered Solutions 740 452 2,261 2,160
Consumer Health 265 258 810 848
--------- --------- --------- ---------
5,023 5,067 14,997 15,635
Income from operations after
depreciation and amortization $ 3,274 $ 5,325 $ 15,773 $ 17,756
========= ========= ========= =========
7
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Reconciling items
Interest income 119 2 169 98
Interest expense (746) (1,280) (2,837) (3,733)
Other expense - net (231) (1,392) (922) (2,352)
-------- ---------- -------- --------
Consolidated income before
income taxes and minority interest $ 2,416 $ 2,655 $ 12,183 $ 11,769
======== ========== ======== ========
September 30, 2001 December 31, 2000
------------------ -----------------
Total Assets
Activated Carbon $135,019 $150,527
Service 93,067 88,581
Engineered Solutions 92,137 84,373
Consumer Health 15,715 16,159
-------- --------
$335,938 $339,640
======== ========
6. Derivative Instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities". In June 2000, the FASB
issued SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an amendment of FASB Statement No. 133," to
clarify four areas causing difficulties in implementation. These new
standards require recognition of all derivatives as either assets or
liabilities at fair value which 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.
The effective date of SFAS No. 133 was amended by SFAS No. 137. The Company
adopted the standard effective January 1, 2001 as required. Management has
concluded that there are no transition adjustments to record as of January
1, 2001 as a result of the adoption of SFAS No. 133.
As of September 30, 2001, the Company held three derivative instruments.
None of the three derivatives received hedge accounting treatment under
SFAS No. 133 and were marked to market through the Company's earnings for
the nine months ended September 30, 2001.
7. Contingencies
On December 31, 1996, the Company purchased the common stock of Advanced
Separation Technologies Incorporated (AST) from Progress Capital Holdings,
Inc. and Potomac Capital Investment Corporation.
On January 12, 1998, the Company filed a claim for unspecified damages in
the United States District Court in the Western District of Pennsylvania
alleging among other things that Progress Capital Holdings and Potomac
Capital Investment Corporation materially breached various AST financial
and operational representations and warranties included in the Stock
Purchase Agreement. Based upon information obtained since the acquisition
and corroborated in the course of pre-trial discovery, the Company believes
that it has a reasonable basis for this claim and intends to vigorously
pursue reimbursement for damages sustained. Neither the Company nor its
counsel can predict with certainty the amount, if any, of recovery that
will be obtained from the defendants in this matter. Accordingly, the
Company has not recorded a receivable for this gain contingency pending
further developments in the litigation.
8
The Company is involved in various 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, if it is probable that a
liability has been incurred and an amount is reasonably estimable.
Management believes, after consulting with counsel, that the ultimate
liabilities, if any, resulting from such lawsuits and claims will not
materially affect the consolidated results, liquidity or financial position
of the Company.
8. New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which
requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. The adoption of SFAS No. 141 is
not expected to have any impact on the Company's financial statements. The
Company plans to adopt SFAS No. 141 as of January 1, 2002 as required.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and recognized intangible
assets determined to have an indefinite useful life no longer be amortized,
but instead be tested for impairment annually. All other recognized
intangible assets are to be amortized over their estimated useful lives and
tested for impairment annually in accordance with SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Management is currently evaluating the impact of the adoption
of SFAS No. 142 on the Company's financial statements. The Company plans to
adopt SFAS No. 142 as of January 1, 2002 as required.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. Management has not yet evaluated the impact of the
adoption of SFAS No. 144 on the Company's financial statements. The Company
plans to adopt SFAS No. 144 as of January 1, 2002 as required.
9
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 quarter ended September 30, 2001
increased by $.5 million or .7% while sales for the year-to-date period then
ended were $4.2 million or 2.1% greater versus the similar 2000 periods. (An
analysis of sales by segment can be found in Note 5 of Selected Notes to
Financial Statements.) Net Sales for the activated carbon segment decreased by
$6.7 million or 21.0% and $13.5 million or 14.1% for the quarter and
year-to-date periods ended September 30, 2001 respectively, versus the quarter
and year-to-date periods ended September 30, 2000. The decline for both the
quarter and year-to-date was primarily the result of lower sales volume due to
increasing competitive pressures in key areas in the United States, the
conversion of carbon segment sales to service segment sales, unshipped orders
due to project delays in Japan, and the adverse impact of foreign currency
translation. Net sales for the service segment for the quarter and year-to-date
periods ended September 30, 2001 increased by $2.8 million and $3.8 million
respectively, or 13.6% and 5.7% better than the comparable 2000 periods. The
increased revenues in both periods are the result of general price increases
related to escalation of service contracts and the conversion of carbon segment
sales to service segment sales partially offset by the adverse impact of foreign
currency translation. Revenues associated with the engineered solutions segment
increased by $3.3 million or 41.8% for the third quarter 2001 versus the third
quarter of 2000 and by $14.5 million or 64.1% for the year-to-date period ended
September 30, 2001 versus the year-to-date period ended September 30, 2000. The
increases for both the quarter and year-to-date periods are primarily attributed
to increased revenue recognition of ion exchange equipment related projects due
to a major contract secured in the first quarter of 2001. Sales to the consumer
health segment for the quarter ended September 30, 2001 increased by $1.0
million or 25.5% compared to the quarter ended September 30, 2000 and decreased
during the year-to-date period ended September 30, 2001 by $.6 million or 3.6%
versus the similar 2000 period. The increase for the quarter was primarily due
to increased demand for the Company's charcoal and charcoal cloth products. The
year-to-date decline was primarily the result of depressed sales of charcoal
products during the second quarter of 2001 combined with the adverse impact of
foreign currency translation partially offset by increased sales of the
Company's new consumer products that utilize the Company's existing technology.
The total adverse impact of foreign currency translation on consolidated net
sales for the quarter and year-to-date periods ended September 30, 2001 was $1.1
million and $4.8 million, respectively.
Gross profit, before depreciation, as a percentage of net sales was 31.4% for
the quarter ended September 30, 2001 compared to 35.8% for the similar 2000
period representing a 4.4 percentage point decline. For the year-to-date period,
gross profit, before depreciation, as a percentage of net sales was 33.4% in
2001 versus 36.8% in the 2000 period representing a 3.4 percentage point
decline. Both declines resulted from a combination of lower margins in carbon
products due to increases in energy costs, increased production costs due to the
labor strike at the Company's Catlettsburg, Kentucky facility, and the higher
cost of U.S. sourced material for the Company's Belgian branch due to the
decline of the Euro versus the dollar in the comparable periods of 2001 and 2000
and lower margins in engineered solutions products due to large first time
project costs.
Depreciation and amortization during the quarter ended September 30, 2001 was
comparable to depreciation and amortization during the quarter ended September
30, 2000. The depreciation and amortization decrease of $.6 million for the
year-to-date period ended September 30, 2001 versus the comparable 2000 period
was related primarily to asset write-offs associated with the May 2000 shutdown
of the activated carbon line in Feluy, Belgium pursuant to the 1999
restructuring plan.
Combined, selling, general and administrative expenses and research and
development expenses for the quarter and year-to-date periods ended September
30, 2001 were below the comparable 2000 quarter and year-to-date periods by $.6
million or 4.8% and $3.0 million or 7.2% respectively. The primary reason for
the decrease in the quarter is a revision of the estimate of the Company's
pension expense coupled with less spending on outside consulting and travel
partially offset by severance payments related to recent
10
organizational changes. In addition, the establishment of the Feluy, Belgium
center of excellence in July 2000 and the settlement of the Trojan Technologies
lawsuit that was accrued for in the first quarter of 2000 contributed to the
year-to-date decrease.
Other expense-net for the quarter ended September 30, 2001 decreased by $1.2
million or 83.4% as compared to September 30, 2000 due to a change in estimate
for certain non-income taxes and a decrease in foreign exchange losses due to
hedging the exposure resulting from sourcing the Company's European operations
with U.S. product. Year-to-date, other expense decreased by $1.4 million or
60.8% due to the aforementioned change in estimate for certain non-income taxes
and decrease in foreign exchange losses partially offset by charges associated
with marking derivative instruments to market.
Interest expense for the quarter and year-to-date periods ended September 30,
2001 was below the similar quarter and year-to-date periods ended September 30,
2000 by $.5 million or 41.7% and $.9 million or 24.0% respectively. The decrease
in interest expense was primarily the result of the combination of lower
interest rates and a lower average level of borrowings during the comparable
periods.
Financial Condition
- -------------------
Working Capital and Liquidity
-----------------------------
Cash flows from operating activities were $16.6 million for the
year-to-date period ended September 30, 2001 versus $21.6 million for the
comparable 2000 period. The $5.0 million decrease represents an increase in
working capital in 2001 in combination with significant decreases in working
capital in 2000 that were not expected to be repeated.
Common stock dividends paid during the quarters ended September 30, 2001 and
September 30, 2000 represented $.05 per common share.
Total debt at September 30, 2001 was $67.0 million, a decrease of $.4 million
from December 31, 2000.
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 $113.4 million credit facility consisting of an $86.8 million
five-year revolving credit facility expiring in May 2004 and a $26.6 million
364-day revolving credit facility renewed in May 2001, which expires in May
2002. Included in this facility is a letter of credit subfacility which may not
exceed $30.0 million. At September 30, 2001 there were no borrowings under the
364-day revolving credit agreement.
In January 2001, the Company entered into an interest rate swap that fixes $10.0
million of its outstanding variable rate U.S. credit facility at 5.96%. The
arrangement expires in 2003.
Restructuring of Operations
- ---------------------------
The Company currently has two separate restructuring plans requiring
continued cash outlays as of the period ended September 30, 2001. The latter of
the two initiatives was undertaken during the fourth quarter of 1999 while the
former commenced in the third quarter of 1998. The details of both restructuring
plans are outlined below.
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 providing
services and solutions to customer problems. As part of this strategy, three
activated carbon production lines have been shut down and dismantled. One of
these lines was at the Feluy, Belgium location, another was at Neville Island,
Pennsylvania and the third was at the Company's Catlettsburg, Kentucky facility.
Associated with the
11
cessation of activated carbon production activity at the Feluy plant, office
activity has been moved from Brussels, Belgium to the Feluy plant. Operations at
several other locations were consolidated to gain global productivity and
centralized processes to promote corporate-wide sharing of technical,
operational and financial information. Included in this consolidation was the
transfer of production and administration activities from Markham, Ontario,
Canada and Lakeland, Florida to Pittsburgh, Pennsylvania. The implementation was
begun in December 1999 and is essentially complete except for contractual cash
outlays for employee severance payments to be made through the fourth quarter of
2001 and other contractual cash outlays through the second quarter of 2006. The
number of employee separations from this restructuring was 152, which was in
line with the planned separations of 150. These separations have occurred
primarily at the locations impacted by the strategy and were spread between
plant personnel and administrative positions.
In the third quarter of 1998, the Company initiated a worldwide plan to reduce
costs and realign the organization structure. The implementation was begun in
September 1998 and is essentially completed with the exception of some minor
contractual cash outlays that will continue through the first quarter of 2002.
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 nine months ended September 30, 2001
was:
Balance Balance
1-1-01 Payments 9-30-01
------- -------- -------
($000)
1999 Plan
- ---------
Employee severance and
termination benefit costs $ 974 $ (544) $ 430
Other costs 1,735 (677) 1,058
------- ------- -------
2,709 (1,221) 1,488
------- ------- -------
1998 Plan
- ---------
Employee severance and
termination benefit costs 527 (440) 87
Other costs 62 (18) 44
------- ------- -------
589 (458) 131
------- ------- -------
Total reserves $ 3,298 $(1,679) $ 1,619
======= ======= =======
Management believes the reserve balances are adequate.
Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment totaled $8.4
million for the year-to-date period ended September 30, 2001 compared to
expenditures of $6.7 million for the same period in 2000. The increase is a
combination of the Company's investment in 2001 in the construction of a carbon
facility in the People's Republic of China, and the Company's conservative
spending policy regarding capital in 2000, which kept expenditures low as the
Company concentrated on reducing its capital asset base.
The purchase of business expenditures of $3.4 million represents the Company
increasing its equity ownership in its Japanese joint venture from 60% to 100%
at the end of the first quarter. The purchase of the remaining shares resulted
in the Company recording additional goodwill of $1.5 million.
12
Employee Relations
- ------------------
The Company's labor agreement with the United Steelworkers of America
Local 7047 representing the 186 hourly workers at the Company's Catlettsburg,
Kentucky facility expired on June 6, 2001. The workers continued working while
negotiations continued until July 20 when they decided to strike after
negotiations broke down over a pay-for-performance provision proposed by the
Company. On October 6 the hourly workers returned to work under the terms of the
expired contract while negotiations continue on a new contract. At present, the
Company is not able to predict when an agreement with the union might be
reached, but the potential of another strike is not expected to have any impact
on the Company's ability to meet the future requirements of its customers.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". In June 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities - an amendment of FASB Statement No. 133," to clarify four areas
causing difficulties in implementation. These new standards require recognition
of all derivatives as either assets or liabilities at fair value which 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.
Management appointed a team to implement SFAS No. 133 on a global basis for the
Company. The Company has defined its risk management policy, has educated both
financial and non-financial personnel worldwide, and has reviewed contracts for
applicability with SFAS No. 133-related issues. Based upon this comprehensive
review of free-standing derivatives and contracts for embedded derivatives,
management has concluded that there are no transition adjustments to record as a
result of the adoption of SFAS No. 133.
The Company plans on increasing its use of foreign currency forward contracts to
manage its foreign currency risk which could result in future earnings
volatility depending upon the ultimate accounting treatment under SFAS No. 133
for these contracts.
The effective date of SFAS No. 133 was amended by SFAS No. 137. The Company
adopted the standard effective January 1, 2001 as required.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which
requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. The adoption of SFAS No. 141 is not
expected to have any impact on the Company's financial statements. The Company
plans to adopt SFAS No. 141 as of January 1, 2002 as required.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 requires that goodwill and recognized intangible assets
determined to have an indefinite useful life no longer be amortized, but instead
be tested for impairment annually. All other recognized intangible assets are to
be amortized over their estimated useful lives and tested for impairment
annually in accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Management is
currently evaluating the impact of the adoption of SFAS No. 142 on the Company's
financial statements. The Company plans to adopt SFAS No. 142 as of January 1,
2002 as required.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. Management has
not yet evaluated the impact of the adoption of SFAS No. 144 on the Company's
financial statements. The Company plans to adopt SFAS No. 144 as of January 1,
2002 as required.
13
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
There were no significant legal proceedings for the quarter ended
September 30, 2001.
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
September 30, 2001.
14
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: November 14, 2001 /s/William E. Cann
----------------------------------
William E. Cann
Senior Vice President,
Chief Financial Officer
15