Exhibit 13
Management's Discussion and Analysis
Calgon Carbon Corporation
Overview
Industry
Economic conditions continued to improve in the United States during 1996 as
demand for activated carbon products remained strong. The European economy
remained stable during the year.
In the United States, capacity utilization was high and prices were increased.
The economy in Europe prevented any significant price increases.
The Company
The Company's business followed the economic patterns established in the
industry but there were three factors that affected its 1996 results. The
Company's revenue comparisons continue to reflect the loss of sales of products
manufactured at the Brilon-Wald, Germany plant, which was closed in 1995, and
equipment sales reductions due primarily to the continuation of the Company's
decision to use its resources to pursue more profitable activities. Sales
revenues in 1996 were affected in a positive manner by the acquisition program
which was initiated during the year.
In the United States, volume increases of approximately 7% were achieved for
activated carbon products and 1% in the service business. Equipment sales
(exclusive of the acquisitions) decreased by 28%. Price increases for activated
carbon products represented an increase of 1%.
In Europe, activated carbon products experienced a volume loss of approximately
22%, due primarily to the closing of the Brilon-Wald, Germany plant, and the
equipment business volume was down by 22%. However, service volume increased by
24%.
As a result of these activities, consolidated revenues in 1996 were comparable
to 1995.
During 1996, the Company acquired four businesses. These acquisitions will
provide Calgon Carbon with technologies that are complementary to its existing
expertise and will have a significant impact on the Company's future. (See Note
2 to the Consolidated Financial Statements).
The Company expects activated carbon and service sales to continue to increase
in volume in 1997. This will result in an improved percentage increase because
the comparison will no longer be impacted by the loss of products associated
with the closed plant. Price increases are also expected to be achieved at a
similar rate as in 1996. The Company has and will continue to pursue only high
margin equipment business including equipment sales resulting from the recent
acquisitions.
The Company continues to focus on achieving its vision, which is to be the
world's leading producer, supplier and designer of innovative technologies,
value-added products and services, specifically developed for the purification,
separation and concentration of liquids and gases.
Progress is being achieved on all of the six initiatives adopted by the Company:
. Rapidly introduce new products to differentiate Calgon Carbon from its
competition and better serve customer needs.
. Make acquisitions, form partnerships and license technology in areas
synergistic with the corporate vision.
. Maintain the low-cost position in supplying products and services to the
market.
. Establish custom/pool reactivation centers in emerging growth markets around
the world.
. Continuously improve the existing product line.
. Focus total quality efforts on first-time quality and customer satisfaction.
Beginning in 1997, the Company will initiate the "Shareholder Value Added"
technique of measuring progress towards its goals. This performance measurement
method compares cash-based operating results to the cost of capital employed to
determine if value is being added to the Company.
Results of Operations
1996 Versus 1995
Consolidated net sales in 1996 decreased by $1.7 million or 0.6% versus 1995.
This decrease was the result of decreases for carbon, equipment and charcoal of
3.9%, 10.7% and 4.4%, respectively, partially offset by an 11.7% increase for
service. The net sales decrease was primarily related to declines in the
European markets resulting from the closure of the Brilon-Wald, Germany plant in
1995 and the strengthening of the U.S. dollar relative to the European
currencies which resulted in a negative effect on revenues of $3.9 million. On a
market basis, sales to the industrial process area decreased by $1.0 million or
0.7% and sales of charcoal decreased by $.8 million or 4.4%. Sales to the
environmental category were flat. The reduction in the industrial process
category was the result of increases in the worldwide food category (primarily
sweeteners) and in the United States original equipment manufacturers area
more than offset by declines in the worldwide chemical pharmaceutical category,
the European original equipment manufacturer area and in the domestic cigarette
and worldwide energy categories. The consistent results in the environmental
area were due to decreases in the European municipal market and reduced
equipment sales in the industrial category offset by sales in the recently
acquired oxidation technologies business. The consumer charcoal area decrease
was due to unfavorable barbecuing weather conditions in Germany.
17
Gross profit before depreciation as a percentage of net sales was 37.8% in 1996
versus 36.9% in 1995. The improvement was the result of increased prices, sales
of higher valued products and reduced manufacturing costs, partially offset by
increased natural gas costs and higher costs for coconut-based products.
Depreciation increased by $.6 million in 1996 due to normal, ongoing capital
spending.
Selling, general and administration expenses increased by $.1 million in 1996.
This increase was due to increases associated with the recently acquired
oxidation technologies business partially offset by personnel related decreases,
including a $.9 million reduction in the provision for the Employee Growth
Sharing Plan.
Research and development expenses, as a percentage of sales, were 2.2% in 1996
compared to 1.9% in 1995. The increase of $.9 million resulted from personnel
additions and the new oxidation technologies business.
Interest income increased by $.1 million in 1996 due to improved rates of
return. Interest expense increased in 1996 by $.1 million due to increased debt
incurred in June 1996 to fund the acquisition of the oxidation technologies
business.
Other (expense)-net reported a favorable variation in 1996 of $1.3 million. This
favorable variation was the result of net foreign currency transaction gains in
1996 versus net foreign currency transaction losses in 1995.
The effective tax rate in 1996 was 36.0% compared to an effective tax rate of
33.8% in 1995. This 2.2 percentage point increase was primarily due to reduced
state income tax benefits and to reduced research and development credits.
1995 Versus 1994
Consolidated net sales in 1995 increased by $17.7 million or 6.4% versus 1994.
This increase was related to the carbon, service and consumer charcoal areas
which increased by 6.3%, 8.5% and 17.0%, respectively. Equipment sales decreased
by 5.5%. Of the net sales increase, $10.2 million resulted from currency rate
changes in Europe. The remainder of the increase was primarily volume related.
On a market basis, sales to the industrial category increased by $13.8 million
or 11.2% and consumer charcoal sales improved by $2.6 million or 17.0%. Sales to
the environmental area remained stable versus 1994. The industrial category
increase was primarily attributed to increased activities in the European
chemical industry, the United States original equipment manufacturer area and
the international energy market. The consumer charcoal improvement was related
to favorable weather conditions in Europe. The environmental area was stable
because improvements in the worldwide municipal category were offset by
equipment decreases in the industrial category.
Gross profit before depreciation as a percentage of net sales was 36.9% in 1995
versus 35.3% in 1994. The improvement was the result of reduced production costs
and sales of higher valued products.
Depreciation expense decreased by $.6 million in 1995 due to the closing of the
Brilon-Wald, Germany plant and the writeoff of unproductive fixed assets in
1994.
Selling, general and administrative expenses increased by $3.7 million in 1995.
The increase was caused by the effect of foreign currency changes in Europe and
by personnel related cost increases, including a provision for the Employee
Growth Sharing Plan of $1.0 million.
Research and development expenses were 1.9% of net sales in 1995 versus 2.3% of
net sales in 1994.
Interest income increased by $.4 in 1995 because of increased investable cash
and improved rates of return.
The effective tax rate for 1995 was 33.8%.
The 1994 tax rate reflected a benefit of 53.7% and was primarily due to the
recognition of tax benefits associated with the 1994 restructuring charge.
Excluding the effect of this restructuring charge, the adjusted income tax rate
for 1994 was 32.5%. The 1995 increase, as adjusted, was due to reduced
utilization of foreign tax credits, partially offset by a benefit arising from
the conversion of the German operations from corporate to partnership status for
U.S. tax purposes.
- -------------------------------------------------------------------------------
The Company does not believe that inflation has had a significant effect on its
business during 1996 or 1995.
Restructuring of Operations
From 1991 through 1994, income from operations declined in absolute dollars and
as a percentage of net sales. These declines were attributed principally to
lower gross margins before depreciation reflecting lower average selling prices
and a less favorable mix of products. In assessing what could be done to halt
this decline and to stabilize net income, the Company looked at the efficiency
of its facilities, the type of products produced and the magnitude of selling,
general and administrative and research and development expenses. It was
projected that market conditions could improve for certain products. Based on
this, the Company's initial thrust involved the reduction of certain plant
period costs and operating expenses and the writeoff of certain non-productive
assets.
After idling certain producing units at several
18
facilities due to lack of demand, it was determined in 1994 that additional
restructuring of the Company's operations was necessary. Based upon the
continued review of facilities and products and the strategic initiatives
developed in 1994, the Company committed to a plan to close its Brilon-Wald,
Germany plant due to the high costs associated with the plant's operation. The
Company also made the decision to dispose of certain assets and terminate
employees at other locations. The details of this $41.8 million restructuring
charge are outlined in Note 3 to the Consolidated Financial Statements.
The Company did not withdraw from the German activated carbon market and is
currently supplying its German customers with products from Belgium, the United
Kingdom and the United States. The closing of the Brilon-Wald plant did not
materially affect consolidated sales revenues in 1995 and the profitability of
its German operations improved. In 1996, consolidated sales revenues were
adversely impacted by $12.0 million due to the loss of products previously
manufactured only at Brilon-Wald. The Company also increased utilization of its
other manufacturing facilities.
During 1997, the Company expects to complete the restructuring plan begun in the
fourth quarter of 1994. The restructuring reserve at December 31, 1996 of $7.8
million relates principally to the estimated costs for the demolition of the
Brilon-Wald, Germany plant. The Company has also been approached by potential
purchasers of the facility, however, at this time a suitable buyer has not been
identified. Cash outlays for the remaining restructuring costs will be paid from
internally generated funds or available external financial sources.
Working Capital and Liquidity
Net cash provided by operating activities was $46.4 million in 1996, which was
generated primarily from net earnings before non-cash charges for depreciation
and amortization and decreased working capital.
During 1996, the Company increased its United States revolving credit facilities
from $20.0 million to $50.0 million. These facilities expire in April 1997 and
in May 1997. At December 31, 1996, the Company had $50.0 million outstanding
under these credit agreements. Subsequent to December 31, 1996, the Company
entered into a five-year $50.0 million bank credit facility and amounts
outstanding under the United States revolving credit facilities were refinanced
under this five-year credit facility. This new credit agreement requires the
Company to comply with certain financial covenants for consolidated debt-to-
capital and interest expense coverage. Interest rate options are comparable to
the Company's existing revolving credit facilities. An annual commitment fee is
required on the total amount of the facility. The Company also maintains a $16.1
million (25 million deutsche mark) credit facility with a German bank with a
duration of "until further notice." At December 31, 1996, the Company had $3.9
million outstanding under this facility.
During 1996, the Company spent approximately $92.6 million for acquisitions. The
acquisitions were financed with a combination of internal and external financing
resources. The Company borrowed $50.0 million under short-term revolving credit
facilities, $10.2 million ($14 million Canadian dollars) under a five-year term
loan and $3.9 million (6 million deutsche mark) under the German credit facility
to partially fund these acquisitions. (See Note 2 to the Consolidated Financial
Statements).
During 1996, the Company continued its common stock repurchase plan and acquired
755,200 shares at a cost of $7.7 million. These purchases were made pursuant to
a plan, covering up to 2 million shares or up to 5% of the Company's common
stock, authorized by the Board of Directors in July 1993. As of December 31,
1996, the Company has acquired 1,761,300 shares for a total cost of $20.1
million. Further purchases will be made at such times as deemed appropriate by
the Company's management.
It is the current intention of the Company to declare and pay quarterly cash
dividends on its common stock. The Company has paid cash dividends since the
third quarter of 1987, the quarter succeeding the one in which the Company went
public. The declaration and payment of dividends is at the discretion of the
Board of Directors of the Company. Future dividends will depend on the Company's
operating results, financial condition, cash requirements of its business,
future prospects and other factors considered relevant by the Board of
Directors. At the February 1997 Board of Directors meeting, the regular dividend
of $.08 per common share was declared and will be paid on April 1, 1997.
Based upon its present financial condition, including its cash and cash
equivalents, and history of operations, the Company anticipates that net cash
provided from 1997 operating activities combined with other available external
financial resources will provide sufficient liquidity to fund operating and
capital expenditures requirements and to meet its restructuring obligations,
debt service, stock repurchase and dividend requirements.
Capital Expenditures and Investments
Capital expenditures were $14.4 million in 1996, $12.7 million in 1995 and $7.1
million in 1994. The
19
major 1996 spending was associated with capacity expansions
at the Big Sandy, Kentucky plant ($6.0 million) and at the Feluy, Belgium
facility ($1.2 million) and for domestic service customer capital ($2.9
million). Significant 1995 expenditures were for improvements at one of the Big
Sandy, Kentucky production lines ($6.7 million) and for domestic service
customer capital ($1.1 million). The 1994 expenditure amount included
improvements at the Bodenfelde, Germany plant ($1.8 million) and domestic
service customer capital ($1.4 million). Capital expenditures for 1997 are
projected to be approximately $40.0 million and are to include carbon production
capacity increases at the Big Sandy, Kentucky; Pearl River, Mississippi; and
Feluy, Belgium plants and an improved coal handling system at the Big Sandy,
Kentucky plant.
- --------------------------------------------------------------------------------
Report of Management
The consolidated financial statements and related notes have been prepared by
management, who are responsible for their integrity and objectivity. The
statements have been prepared in accordance with generally accepted accounting
principles and include amounts based on management judgments and estimates. All
other financial information in this annual report is consistent with that in the
financial statements.
The Company maintains internal accounting control systems that are designed to
provide reasonable assurance that assets are safeguarded, that transactions are
executed in accordance with management's authorization and are properly recorded
and that accounting records are adequate for preparation of financial statements
and other financial information. The design, monitoring and revision of internal
accounting control systems involve management's judgments with respect to the
relative cost and expected benefits of specific control measures.
In addition to the system of internal accounting controls, the Company maintains
guidelines of Company policy emphasizing proper overall business conduct,
possible conflicts of interest, compliance with laws and confidentiality of
proprietary information.
The financial statements have been audited by Price Waterhouse LLP, independent
accountants. Their responsibility is to examine the Company's financial
statements in accordance with generally accepted auditing standards and to
express their opinion with respect to the fairness of presentation of the
statements.
The members of the audit committee of the Board of Directors, none of whom are
employees of the Company, review the services performed by the independent
accountants and receive and review the reports submitted by them. The audit
committee meets several times during the year with management and the
independent accountants to discuss audit activities, internal controls and
financial reporting matters. The independent accountants have full and free
access to the committee.
- --------------------------------------------------------------------------------
Report of Price Waterhouse LLP Independent Accountants
To the Board of Directors and Shareholders of Calgon Carbon Corporation:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Calgon
Carbon Corporation (the Company) and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Pittsburgh, Pennsylvania
February 3, 1997, except as to
Note 7, which is as of
March 3, 1997.
20
Consolidated Statement of Income
Calgon Carbon Corporation
Year Ended December 31
(Dollars in thousands except per share data) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Net Sales $290,196 $291,898 $274,244
- -------------------------------------------------------------------------------------------------------------------------
Cost of products sold (excluding depreciation) 180,600 184,219 177,370
Depreciation 19,049 18,450 19,027
Selling, general and administrative expenses 50,277 50,195 46,522
Research and development expenses 6,518 5,593 6,291
Restructuring charges - - 41,761
- -------------------------------------------------------------------------------------------------------------------------
256,444 258,457 290,971
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations 33,752 33,441 (16,727)
Interest income 1,551 1,474 1,079
Interest expense (752) (620) (752)
Other (expense)-net (742) (2,041) (2,186)
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 33,809 32,254 (18,586)
Provision (benefit) for income taxes 12,171 10,909 (9,977)
- -------------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 21,638 $ 21,345 $ (8,609)
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $.54 $.53 $(.21)
- -------------------------------------------------------------------------------------------------------------------------
Weighted average shares, in thousands 40,267 40,419 40,637
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
21
Consolidated Balance Sheet
Calgon Carbon Corporation
December 31
(Dollars in thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 15,439 $ 40,089
Receivables 63,762 55,779
Inventories 46,471 43,643
Other current assets 9,247 8,518
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 134,919 148,029
Property, plant and equipment, net 173,564 175,952
Intangibles 72,658 111
Other assets 16,110 13,909
- -------------------------------------------------------------------------------------------------------------------------
Total assets $397,251 $338,001
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Long-term debt due within one year $ 4,451 $ 8,514
Accounts payable and accrued liabilities 35,846 28,252
Restructuring reserve 7,847 11,616
Payroll and benefits payable 12,903 13,546
Accrued income taxes 5,202 1,517
- -------------------------------------------------------------------------------------------------------------------------
Total current liabilities 66,249 63,445
Long-term debt 65,837 5,608
Deferred income taxes 40,522 41,959
Other liabilities 7,748 8,802
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities 180,356 119,814
- -------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common shares, $.01 par value, 100,000,000 shares
authorized, 41,435,960 and 41,424,960 shares issued 414 414
Additional paid-in capital 62,102 61,986
Retained earnings 162,098 153,335
Cumulative translation adjustments 12,347 14,780
- -------------------------------------------------------------------------------------------------------------------------
236,961 230,515
Treasury stock, at cost, 1,761,300 and 1,006,100 shares (20,066) (12,328)
- -------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 216,895 218,187
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $397,251 $338,001
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
22
Consolidated Statement of Cash Flows
Calgon Carbon Corporation
Year Ended December 31
(Dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net income (loss) $ 21,638 $ 21,345 $ (8,609)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Non-cash restructuring charges and asset write downs - - 19,210
Depreciation and amortization 19,334 18,527 19,555
Employee benefit plan provisions 523 448 695
Changes in assets and liabilities-net of effects from
purchase of businesses, restructuring and exchange:
(Increase) decrease in receivables 3,957 (3,957) (1,957)
(Increase) decrease in inventories (966) (205) 1,855
(Increase) decrease in other current assets (240) 2,761 1,239
Increase (decrease) in restructuring reserve (3,006) (12,850) 21,967
Increase in accounts payable and accruals 4,933 3,362 4,850
Increase (decrease) in long-term deferred income
taxes (net) 1,919 7,226 (14,838)
Other items-net (1,723) (1,051) (405)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 46,369 35,606 43,562
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of businesses (92,633) - -
Property, plant and equipment expenditures (14,358) (12,676) (7,113)
Proceeds from disposals of equipment 1,006 698 1,357
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (105,985) (11,978) (5,756)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from borrowings 56,071 3,999 598
Treasury stock purchases (7,738) - (10,713)
Common stock dividends (12,733) (32,335) (6,493)
Other 116 - 225
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 35,716 (28,336) (16,383)
- -------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (750) (579) 2,161
- -------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (24,650) (5,287) 23,584
Cash and cash equivalents, beginning of period 40,089 45,376 21,792
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 15,439 $ 40,089 $ 45,376
- -------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
23
Consolidated Statement of Shareholders' Equity
Calgon Carbon Corporation
Common Additional Cumulative Treasury Stock
Shares Common Paid-in Retained Translation Sub- --------------------
(Dollars in thousands) Issued Shares Capital Earnings Adjustments Total Shares Amount Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 41,102,360 $ 411 $ 61,339 $179,427 $ 7,504 $248,681 153,600 $ (1,615) $247,066
1994
- ----
Net (loss) - - - (8,609) - (8,609) - - (8,609)
Employee stock plans 322,600 3 647 - - 650 - - 650
Common stock dividends
Cash ($.16 per share) - - - (6,493) - (6,493) - - (6,493)
Translation adjustments - - - - 5,246 5,246 - - 5,246
Treasury stock purchased - - - - - - 852,500 (10,713) (10,713)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 41,424,960 414 61,986 164,325 12,750 239,475 1,006,100 (12,328) 227,147
- ------------------------------------------------------------------------------------------------------------------------------------
1995
- ----
Net income - - - 21,345 - 21,345 - - 21,345
Common stock dividends
Cash ($.80 per share) - - - (32,335) - (32,335) - - (32,335)
Translation adjustment - - - - 2,030 2,030 - - 2,030
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 41,424,960 414 61,986 153,335 14,780 230,515 1,006,100 (12,328) 218,187
- ------------------------------------------------------------------------------------------------------------------------------------
1996
- ----
Net income - - - 21,638 - 21,638 - - 21,638
Employee stock plans 11,000 - 116 - - 116 - - 116
Common stock dividends
Cash ($.32 per share) - - - (12,875) - (12,875) - - (12,875)
Translation adjustment - - - - (2,433) (2,433) - - (2,433)
Treasury stock purchased - - - - - - 755,200 (7,738) (7,738)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 41,435,960 $414 $62,102 $162,098 $ 12,347 $236,961 1,761,300 $(20,066) $216,895
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
24
Notes to the Consolidated Financial Statements
Calgon Carbon Corporation
- --------------------------------------------------------------------------------
1. Statement of Accounting Policies
Operations
The Company's operations are principally conducted in one business segment, the
production, design and marketing of products and services specifically developed
for the purification, separation and concentration of liquids and gases. The
Company's markets are primarily in the United States and in Europe.
Principles of Consolidation
The consolidated financial statements include the accounts of Calgon Carbon
Corporation and its wholly-owned subsidiaries, Chemviron Carbon GmbH, Calgon
Carbon Canada, Inc., Chemviron Carbon Ltd., Calgon Carbon Investments Inc.,
Solarchem Environmental Systems Inc., Charcoal Cloth (International) Limited,
Charcoal Cloth Limited, Advanced Separation Technologies Incorporated and the
Company's foreign sales corporation. A portion of the Company's international
operations in Europe is owned directly by the Company and is operated as
branches. The Company's 50% investment in Calgon Far East Co., Ltd. is accounted
for by the equity method. Intercompany accounts and transactions have been
eliminated.
Foreign Currency Translation
Substantially all assets and liabilities of the Company's international
operations are translated at year-end exchange rates; income and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments are accumulated in a separate component of shareholders' equity, net
of tax effects. Transaction gains and losses are included in income.
Revenue Recognition
Revenue and related costs are recognized when goods are shipped or services are
rendered to customers.
Inventories
Inventories are carried at the lower of cost or market. Inventory costs are
primarily determined using the last in, first out (LIFO) method.
Property, Plant and Equipment
Property, plant and equipment expenditures are recorded at cost. Repair and
maintenance costs are expensed as incurred. Depreciation for financial statement
purposes is computed on the straight-line method over the estimated remaining
service lives of the assets, which are from twenty to thirty years for buildings
and land improvements, fifteen years for machinery and equipment and seven years
for furniture and vehicles.
Intangibles Resulting from Business Acquisitions
Intangible assets resulting from business acquisitions principally consist of
the excess of the acquisition cost over the fair value of the net assets of
businesses acquired (goodwill). Goodwill is amortized on a straight-line basis
over 40 years. Other intangible assets are amortized on a straight-line basis
over their estimated useful lives.
Pensions
Substantially all U.S. employees of the Company are covered by one of three non-
contributory defined benefit pension plans. It is the Company's policy to
annually fund net pension cost accrued to these plans, subject to minimum and
maximum amounts specified by regulations. In Europe, employees are also covered
by various defined benefit pension plans or government sponsored defined
contribution plans. The Company funds these plans according to local laws and
practices.
Statement of Cash Flows
For the purpose of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
25
- -------------------------------------------------------------------------------
2. Acquisitions
In February 1996, the Company acquired the business and operating assets of the
perox-pure/TM/ operations of Vulcan Peroxidation Systems, Inc. The purchase
provided the Company with entry into the oxidative water treatment market. The
technology is complementary to the Company's existing carbon adsorption service.
The business has equipment assembly and office facilities in Tucson, Arizona.
The acquisition has been accounted for by the purchase method and is included in
the consolidated financial statements from February 20, 1996, the effective date
of the acquisition. The cost was approximately $7,528,000 in cash.
In June 1996, Calgon Carbon Canada, Inc. acquired the common stock of Solarchem
Enterprises Inc. This purchase, along with the "perox-pure/TM/" purchase,
broadened the Company's coverage in the oxidative water treatment market. This
business has assembly, research and office space in Markham, Ontario, Canada.
The acquisition has been accounted for by the purchase method and is included in
the consolidated financial statements from June 3, 1996, the effective date of
the acquisition. The cost was $10,998,000 in cash.
In December 1996, Chemviron Carbon Ltd. acquired the common stock of Charcoal
Cloth (International) Limited and Charcoal Cloth Limited from CCL Holdings
Limited. The acquired companies, with manufacturing and office facilities, are
near Newcastle, England and produce activated carbon in cloth form for odor
control in medical and industrial applications. The textile properties are
suitable for applications where granular activated carbon is not feasible.
The acquisition has been accounted for by the purchase method and is included in
the consolidated financial statements effective December 30, 1996. The cost was
approximately $4,114,000 in cash.
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. AST is headquartered
in Lakeland, Florida, where there are equipment assembly, research and office
facilities. AST designs and assembles proprietary separation equipment that
employs continuous ion exchange and continuous chromatography technologies. AST
serves both the industrial process and environmental markets worldwide and is a
leader in supplying separation systems to the lysine and corn syrup industries.
The acquisition has been accounted for by the purchase method and is included in
the consolidated financial statements effective December 31, 1996. The cost was
approximately $70,762,000 in cash.
The application of purchase accounting to the acquisitions resulted in
recognization of goodwill of $68,813,000 and other intangible assets of
$3,907,000.
Except for the acquisition of AST, the results of operations on a pro forma
basis for the Company's other acquisitions are not presented as the effects are
not material to the consolidated financial statements individually or in the
aggregate.
Unaudited pro forma results of operations for the years ended December 31, 1996
and 1995, assuming the AST acquisition had occurred on January 1, 1995 are as
follows:
Unaudited
Year Ended December 31
(Dollars in thousands except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net sales $317,514 $313,374
Net income $ 21,411 $ 19,796
Net income per common share $ .53 $ .49
- --------------------------------------------------------------------------------
The pro forma information does not purport to be indicative of the results that
actually would have been obtained if the operations had been combined during the
entire period presented and is not intended to be a projection of future
results.
- --------------------------------------------------------------------------------
3. Restructuring Charges
In the fourth quarter of 1994, the Company recorded a charge of $41,761,000 from
a restructuring of operations. Included in the charge were costs totaling
$10,592,000 relating to the separation of employees, writeoffs of inventories
and other assets, closing of an office and the writeoff of patents in the United
States and Canada and in Europe, other than in Germany. At the December 1994
Board of Directors meeting, the Company committed to a plan to close the Brilon-
Wald, Germany plant. A charge of $31,169,000 was made to cover legally required
employee termination costs, asset writeoffs and the demolition, disposition,
site protection and environmental costs
26
involved with this plant. In accordance with the Company's plan, the Brilon-Wald
plant was closed and employees separated in 1995. With the exception of the
writedowns of assets, these restructuring charges resulted in cash outlays.
The following table sets forth the Company's restructuring charges for the year
ended December 31, 1994 (there were no such charges in 1995 or 1996):
(Thousands) Year Ended December 31, 1994
- ---------------------------------------------------------------------------------
Employee separations $10,480
Property, plant and equipment writeoffs 10,363
Patent writeoffs 3,710
Inventory writedowns 5,711
Demolition, disposition, site
protection and environmental costs-Brilon-Wald 11,497
- ---------------------------------------------------------------------------------
Total $41,761
=================================================================================
The reserve balance for demolition, disposition and environmental costs totaled
$7,847,000 at December 31, 1996 and $9,306,000 at December 31, 1995. The reserve
balance for employee separations at December 31, 1995 was $1,900,000.
There were 156 and 21 employees terminated in 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
4. Inventories
December 31
(Thousands) 1996 1995
- --------------------------------------------------------------------------------
Raw materials $16,122 $13,960
Finished goods 30,349 29,683
- -------------------------------------------------------------------------------
Total $46,471 $43,643
================================================================================
Approximately 74% and 71% of total inventories at December 31, 1996 and 1995,
respectively, are valued using the LIFO method. The LIFO carrying value of
inventories exceeded the related current cost by $3,473,000 and $4,232,000 at
December 31, 1996 and 1995, respectively.
- --------------------------------------------------------------------------------
5. Property, Plant and Equipment
December 31
(Thousands) 1996 1995
- --------------------------------------------------------------------------------
Land and improvements $ 12,744 $ 13,054
Buildings 21,823 21,499
Machinery and equipment 266,748 253,608
Furniture and vehicles 8,592 8,236
- --------------------------------------------------------------------------------
$ 309,907 $ 296,397
Less accumulated depreciation (136,343) (120,445)
- --------------------------------------------------------------------------------
Net $ 173,564 $ 175,952
================================================================================
- --------------------------------------------------------------------------------
6. Intangibles
The following summarizes intangible assets, net of accumulated amortization of
$363,000 and $65,000 at December 31, 1996 and 1995, respectively:
December 31
(Thousands) 1996 1995
- ----------------------------------------------------------------------------------
Goodwill $68,663 $ -
Other 3,995 111
- ----------------------------------------------------------------------------------
Total $72,658 $111
==================================================================================
27
- --------------------------------------------------------------------------------
7. Long-Term Debt
December 31
(Thousands) 1996 1995
- --------------------------------------------------------------------------------
United States credit facilities $50,000 $ -
Term loan 10,220 -
Pollution control debt
Ashland, Kentucky bonds 5,100 5,100
German pollution control loans 469 737
German credit facility 3,862 8,285
Other 637 -
- --------------------------------------------------------------------------------
Total $70,288 $14,122
Less current maturities of long-term debt (4,451) (8,514)
- --------------------------------------------------------------------------------
Net $65,837 $ 5,608
================================================================================
United States Credit Facilities
The Company's two credit facilities totalling $50 million expire in April and
May of 1997. An annual facility fee is paid on the unused portion of each credit
line. The facilities provide for interest rates based upon the banks' Prime Rate
with other interest options available. In March 1997, borrowings outstanding
under these loans were refinanced with a $50 million five-year unsecured bank
credit facility expiring March 2002. This five-year credit facility requires the
Company to comply with certain financial covenants for consolidated debt-to-
capital and interest expense coverage. Interest rate options are comparable to
the Company's existing United States credit facilities. An annual commitment fee
is required on the total amount of the facility. As a result of the addition of
the new credit facility, short-term obligations due under the United States
credit facilities were reclassified as long-term as of December 31, 1996. The
weighted average interest rate on the loans outstanding was 5.9%.
Term Loan
In June 1996, the Company entered into a five-year unsecured $10,220,000 ($14
million Canadian dollars) term loan with a Canadian bank. Interest rates are
based upon the bank's Prime Rate or a Bankers Acceptance Rate. As of December
31, 1996, the interest rate was 3.4%.
Pollution Control Debt
The City of Ashland, Kentucky Floating Rate Pollution Control Revenue bonds bear
interest at a defined floating rate and are due October 1, 2006. During the year
ended December 31, 1996, the Company paid interest on these bonds at an average
rate of 3.7%. These pollution control bonds are secured by certain pollution
control assets located at the Company's Big Sandy, Kentucky plant.
The German pollution control loans consist of three loans, due March 31, 1997,
1998 and 2000 and have fixed interest rates of 5.0%, 6.5% and 6.0%,
respectively.
German Credit Facility
The Company maintains a bank credit facility in Germany which provides for
borrowings up to $16,100,000 (25 million deutsche mark). The facility has no
set maturity date and is made available on an "until further notice basis."
No commitment fee is required on the unused portion of the credit line. Loans
bear interest at the German Bank Rate with other interest options available.
As of December 31, 1996, the interest rate was 4.1% on the loan outstanding.
Restrictive Covenants
The United States credit facilities' covenants impose financial restrictions on
the Company, including maintaining certain ratios of total liabilities to
tangible net worth and operating income to interest expense. At December 31,
1996, the Company was in compliance with all financial covenants relating to the
credit facilities in the United States.
The German credit facility and the term loan have no financial covenants.
Maturities of Debt
The Company is obligated to make principal payments on debt outstanding at
December 31, 1996 of $4,451,000 in 1997, $141,000 in 1998, $135,000 in 1999,
$47,000 in 2000 and $10,220,000 in 2001.
28
- --------------------------------------------------------------------------------
8. Lease Commitments
The Company has entered into leases covering principally office, research and
warehouse space, office equipment and vehicles.
Future minimum rental payments required under all operating leases that have
remaining noncancellable lease terms in excess of one year are $5,886,000 in
1997, $5,287,000 in 1998, $4,509,000 in 1999, $4,014,000 in 2000, $3,771,000 in
2001 and $14,781,000 thereafter.
Total rental expenses on all operating leases were $7,136,000, $6,829,000 and
$6,489,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
9. Shareholders' Equity
On March 1, 1995, a voting trust covering 11,898,508 shares of Class A stock
outstanding at December 31, 1994 was terminated. These Class A shares were
automatically converted to common stock on a share-for-share basis effective
that date.
On July 13, 1993, the Board of Directors authorized the Company to purchase up
to two million shares, or approximately 5% of its common stock. Purchases have
been made from time to time and the repurchased shares are held as treasury
stock. No shares were purchased during 1995. During 1996, 755,200 shares were
purchased at a cost of $7,738,000. As of December 31, 1996, the Company had
purchased 1,761,300 shares of its common stock at an aggregate cost of
$20,066,000.
The Board of Directors adopted a Stockholder Rights Plan in January 1995
designed to (1) guard against coercive and abusive tactics that might be used in
an attempt to gain control of the Company without paying all stockholders a fair
price for their shares or (2) the accumulation of a substantial block of stock
without Board approval. The Rights Plan will not prevent takeovers, but is
designed to encourage anyone attempting to acquire the Company to first
negotiate with the Board. The Plan awards one Right for each outstanding share
of common stock held by stockholders of record on February 14, 1995, and
thereafter. Each right entitles the holder to purchase from the Company one one-
hundredth of a share of Calgon Carbon common stock at a purchase price of $50
per share. The Rights will be exercisable only if a person or group acquires
beneficial ownership of 20% or more of the Company's outstanding common stock.
If one of those events occurs, each stockholder (with the exception of the
person or group who owns 20% or more of the outstanding stock) can exchange the
rights for shares with a market value equal to the then-current exercise price
or three shares, whichever has the greater value.
- --------------------------------------------------------------------------------
10. Stock Compensation Plans
At December 31, 1996, the Company has two stock-based compensation plans that
are described below.
Fixed Stock Option Plan
The Company has an Employee Stock Option Plan for officers and other key
employees of the Company. Stock options may be "nonstatutory," with a purchase
price not less than 80% of fair market value on the date of the grant, or
"incentive" with a purchase price of not less than 100% of the fair market value
on that date. Stock appreciation rights may be granted at date of option grant
or at any later date during the term of the option.
"Incentive" stock options granted since 1986 become exercisable no less than six
months after the date of grant primarily in five equal annual installments and
are no longer exercisable after the expiration of eight years from the date of
grant.
A summary of the Plan activity for the years ended December 31, 1996, 1995 and
1994 is presented below:
1996 1995 1994
------------------- --------------------- ---------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 767,000 $11.36 62,000 $ 20.24 396,600 $ 4.38
Granted 68,000 12.06 755,000 10.57 49,120 13.00
Exercised (11,000) 10.50 - - (322,600) .70
Cancelled (60,000) 11.05 (50,000) 10.50 (61,120) 14.63
Outstanding at end of year 764,000 11.45 767,000 11.36 62,000 20.24
Options exercisable at year end 185,500 43,600 28,700
Weighted-average fair value of
options granted during the year $3.41 $ 3.42
- ---------------------------------------------------------------------------------------------------------------------------
29
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12-31-96 Contractual Life Exercise Price at 12-31-96 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$10.50 to $23.13 764,000 6.0 Years $ 11.45 185,500 $13.37
- --------------------------------------------------------------------------------------------------------------------
Performance Based Stock Option Plan
The Company also has a Non-Employee Directors' Stock Option Plan for outside
directors. The aggregate number of shares that may be issued under the plan is
100,000. If the Company's "Income From Operations" in the applicable fiscal year
is greater than the "Income From Operations" of the previous year, options
granted in the current year vest. These stock options are no longer exercisable
after expiration of ten years from the date of grant.
A summary of the Plan activity for the years ended December 31, 1996, 1995 and
1994 is presented below:
1996 1995 1994
------------------------ ------------------- ----------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 8,000 $15.50 6,500 $15.50 6,000 $15.50
Granted 8,100 15.50 8,000 15.50 6,500 15.50
Cancelled - - (6,500) 15.50 (6,000) 15.50
Outstanding at end of year 16,100 15.50 8,000 15.50 6,500 15.50
Options exercisable at year end 8,000 - -
Weighted-average fair value of
options granted during the year $2.82 $ 2.86
- -------------------------------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------------- -------------------------------
Number Weighted-Average Number
Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Exercise Price at 12-31-96 Contractual Life Exercise Price at 12-31-96 Exercise Price
- --------------------------------------------------------------------------------------------------------------------
$ 15.50 16,100 6.8 Years $ 15.50 8,000 $ 15.50
- --------------------------------------------------------------------------------------------------------------------
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation cost has been recognized for these plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans, the Company's net income and net income per common share would have been
reduced to the pro forma amounts indicated below:
Year Ended December 31
(Dollars in thousands except per share data) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Net income As reported $21,638 $21,345
Pro forma $21,317 $21,084
Net income per common share As reported $ .54 $ .53
Pro forma $ .53 $ .52
- --------------------------------------------------------------------------------------------------------------------
30
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions, dividend yield of 2.67%, risk-free interest rates ranging from
5.10% to 6.80%, expected volatility between 29% and 32% for options granted in
1996 and 35% for options granted in 1995 and expected lives of five years for
options granted in 1996 and either three or five years for options granted in
1995.
- --------------------------------------------------------------------------------
11. Employee Growth Sharing Plan
Under the Plan, an employee growth sharing plan pool is calculated as a
percentage of the increase in year-to-year pre-tax income. All full-time
employees not included in any other incentive compensation plan of the Company
are eligible. This plan pool may be adjusted by the Board of Directors at its
sole discretion in any plan year in order to reflect any material events that
would impact the calculation in either a positive or negative manner.
The pools for distribution for the years ended December 31, 1996 and December
31, 1995 were $143,000 and $1,009,000, respectively. There was no pool for
distribution for the year ended December 31, 1994.
- --------------------------------------------------------------------------------
12. Pensions
The Company has a number of non-contributory defined benefit pension plans for
its U.S. employees which provide benefits based upon the greater of a fixed rate
per month or a percentage of average compensation. Prior service and
compensation of employees formerly covered by pension plans of the previous
owners of the Company's operations are considered in the determination of
benefits payable under Company plans. By agreement with previous owners,
benefits payable under Company plans are reduced by the benefit amounts
attributable to the previous owners which are computed utilizing a 2.5%
compensation increase assumption.
Domestic plan assets are invested primarily in commingled equity and bond trust
funds administered by a bank. Prior service cost for all plans is amortized on a
straight-line basis over the remaining average service period of employees
expected to receive benefits under the plans. For U.S. plans, net pension costs,
amounts recognized in the balance sheet and significant assumptions are as
follows:
Year Ended December 31
(Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 1,939 $ 1,332 $ 1,505
Interest cost on projected benefit obligation 2,442 1,822 1,739
Net amortization 242 222 223
- ------------------------------------------------------------------------------------------------------------
4,623 3,376 3,467
- ------------------------------------------------------------------------------------------------------------
Return on plan assets:
Actual loss (return) (4,291) (5,126) 186
Amount deferred 2,049 3,688 (1,504)
- ------------------------------------------------------------------------------------------------------------
Recognized return on plan assets (2,242) (1,438) (1,318)
- ------------------------------------------------------------------------------------------------------------
Net pension cost for the period $ 2,381 $ 1,938 $ 2,149
============================================================================================================
Discount rate 7.25% 8.25% 7.50%
Long-term rate of return on assets 9.00% 8.50% 8.50%
- ------------------------------------------------------------------------------------------------------------
December 31
(Thousands) 1996 1995
- ------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Vested benefits $ 14,422 $ 13,420
Nonvested benefits 3,832 3,748
- ------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $ 18,254 $ 17,168
============================================================================================================
Projected benefit obligation $ 32,584 $ 30,175
Plan assets at fair value (29,271) (23,244)
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets $ 3,313 $ 6,931
Unrecognized net gain (loss) from past experience different from assumed 1,462 (1,315)
Prior service cost not yet recognized in net periodic pension cost (2,958) (2,902)
- ------------------------------------------------------------------------------------------------------------
Pension liability included in the balance sheet $ 1,817 $ 2,714
============================================================================================================
Discount rate 7.75% 7.25%
Rate of increase in compensation levels 4.00% 4.00%
- ------------------------------------------------------------------------------------------------------------
31
There are several defined benefit plans covering certain employees of Chemviron
Carbon GmbH for which the obligations are accrued but not funded in accordance
with local practice. Benefits under these plans are generally based on a
percentage of average compensation.
The European employees in the branches and United Kingdom subsidiary participate
in certain contributory defined benefit pension plans which guarantee a pension
over the state pension level. These plans are funded by employee contributions
calculated as a percentage of their compensation with the balance of the plan
funding provided by Company contributions. Funds are managed by an insurance
company under a deposit administration contract. Benefits under these plans are
generally based upon a percentage of final earnings subject to an upper earnings
limit.
For European plans, net pension costs, amounts recognized in the balance sheet
and significant assumptions are as follows:
Year Ended December 31
(Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the period $ 639 $ 678 $ 608
Interest cost on projected benefit obligation 905 937 799
Net amortization - 36 68
- ------------------------------------------------------------------------------------------------------------------------
1,544 1,651 1,475
- ------------------------------------------------------------------------------------------------------------------------
Return on plan assets:
Actual (return) (321) (282) (249)
Amount deferred 3 (33) 18
- ------------------------------------------------------------------------------------------------------------------------
Recognized return on plan assets (318) (315) (231)
- ------------------------------------------------------------------------------------------------------------------------
Net pension cost for the period $ 1,226 $ 1,336 $ 1,244
========================================================================================================================
Discount rate 7.0--7.8% 7.5--9.0% 7.0--8.0%
Long-term rate of return on assets 7.0--7.8% 7.0--7.8% 8.0--9.0%
- -------------------------------------------------------------------------------------------------------------------------
In addition to the above pension cost for the year ended December 31, 1995, the
Company recognized $268,000 for pension curtailment gains associated with
employee terminations in Germany related to the Brilon-Wald plant shut down in
1995.
December 31
(Thousands) 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligation
Vested benefits $ 9,902 $ 8,781
Nonvested benefits 397 446
- -------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $ 10,299 $ 9,227
=========================================================================================================================
Projected benefit obligation $ 13,698 $ 13,364
Plan assets at fair value (4,842) (4,402)
- -------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets $ 8,856 $ 8,962
Unrecognized net gain from past
experience different from assumed 214 320
Unrecognized net transition obligation,
net of amortization (694) (847)
- -------------------------------------------------------------------------------------------------------------------------
Pension liability included in the balance sheet $ 8,376 $ 8,435
=========================================================================================================================
Discount rate 6.5--7.8% 7.0--7.8%
Rate of increase in compensation levels 4.0--5.0% 4.0--5.5%
- -------------------------------------------------------------------------------------------------------------------------
32
- -------------------------------------------------------------------------------
13. Provision for Income Taxes
The components of the provision (benefit) for income taxes were as follows:
Year Ended December 31
(Thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Current
Federal $ 8,376 $ 3,004 $ 1,937
State and local 442 (58) 172
Foreign 2,252 54 1,994
- -------------------------------------------------------------------------------------------------------------------------
11,070 3,000 4,103
- -------------------------------------------------------------------------------------------------------------------------
Deferred
Federal 445 6,880 (795)
State and local (972) (948) (194)
Foreign 1,628 1,977 (13,091)
- -------------------------------------------------------------------------------------------------------------------------
1,101 7,909 (14,080)
- -------------------------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes $12,171 $10,909 $ (9,977)
=========================================================================================================================
Income (loss) before income taxes for 1996, 1995 and 1994 includes $9,559,000,
$7,846,000 and ($28,879,000), respectively, generated by operations outside the
United States.
The difference between the U.S. federal statutory tax rate and the Company's
effective income tax rate is as follows:
Year Ended December 31
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
U.S. federal statutory rate 35.0% 35.0% (35.0)%
State income taxes, net of federal
income tax benefit (1.0) (2.0) (.1)
Foreign tax credit carryback - - (9.3)
Higher tax (benefit) rate on foreign income (loss) 2.4 3.9 (8.9)
Other-net (.4) (3.1) (.4)
- -------------------------------------------------------------------------------------------------------------------------------
Effective income tax rate 36.0% 33.8% (53.7)%
===============================================================================================================================
The Company has the following operating loss and tax credit carryforwards as of
December 31, 1996 (in thousands):
Type Amount Expiration Date
- -------------------------------------------------------------------------------------------------------------------------------
Operating loss carryforwards-foreign $29,465 None
Operating loss carryforwards-foreign $ 2,808 1997--2001
Tax credit carryforwards $ 200 1998--2004
- -------------------------------------------------------------------------------------------------------------------------------
The Company's U.S. income tax returns have been examined by the Internal Revenue
Service through 1993. Management believes that adequate provisions for taxes
have been made through December 31, 1996.
33
The components of deferred taxes are comprised of the following:
Year Ended December 31
(Thousands) 1996 1995
- --------------------------------------------------------------------------------------------------------------------
Deferred tax assets
Foreign tax loss and credit carryforwards $13,979 $13,513
U.S. tax benefits on deferred foreign income 2,252 2,428
Accruals 7,089 8,782
Intangibles 1,156 1,381
Pensions 1,513 2,126
Organization costs 663 690
Other 106 422
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax assets $26,758 $29,342
====================================================================================================================
Deferred tax liabilities
Property, plant and equipment $37,560 $39,861
U.S. liability on German deferred tax assets 9,348 10,952
Cumulative translation adjustment 6,649 7,958
Inventories 1,761 890
Other 295 688
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $55,613 $60,349
===================================================================================================================
- -------------------------------------------------------------------------------
14. Other Information
Repair and maintenance expenses were $19,695,000, $19,330,000 and $19,693,000
for the years ended December 31, 1996, 1995 and 1994, respectively. Other
(expense)-net includes net foreign currency transaction gains of $1,002,000 for
the year ended December 31, 1996 and losses of ($358,000) and ($548,000) for the
years ended December 31, 1995 and 1994. Also included are taxes other than on
income of ($1,152,000), ($1,162,000) and ($1,335,000) for the years ended
December 31, 1996, 1995 and 1994, respectively.
Deferred taxes included in the translation adjustments for 1996, 1995 and 1994
were ($1,309,000), $1,093,000 and $2,824,000, respectively.
- -------------------------------------------------------------------------------
15. Supplemental Cash Flow Information
(Thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Cash paid during the year for
Interest $ 768 $ 918 $ 430
Income taxes (net of refunds) $ 5,290 $ 802 $ 4,007
- --------------------------------------------------------------------------------------------------------------------
Bank debt
Borrowings $ 79,660 $ 38,300 $ 19,891
Repayments (23,589) (34,301) (19,293)
- --------------------------------------------------------------------------------------------------------------------
Net proceeds from borrowings $ 56,071 $ 3,999 $ 598
====================================================================================================================
34
- -------------------------------------------------------------------------------
16. Geographic Information
Net sales by the Company's operations in certain geographic areas, transfers
between geographic areas and income from operations for 1996, 1995 and 1994 and
identifiable assets, at the end of each year, classified by major geographic
areas in which the Company operates, were as follows:
(Thousands)
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers
U.S. $192,817 $182,414 $174,461
Europe 97,379 109,484 99,783
- --------------------------------------------------------------------------------------------------------------------
$290,196 $291,898 $274,244
====================================================================================================================
Transfers between areas
U.S. $ 11,231 $ 9,340 $ 11,001
Europe 10,394 6,958 5,152
- --------------------------------------------------------------------------------------------------------------------
$ 21,625 $ 16,298 $ 16,153
====================================================================================================================
Income (loss) from operations
U.S. $ 29,709 $ 27,714 $ 13,050
Europe 6,024 7,011 (28,865)
Eliminations (1,981) (1,284) (912)
- --------------------------------------------------------------------------------------------------------------------
$ 33,752 $ 33,441 $(16,727)
====================================================================================================================
Identifiable assets, end of year
U.S. $294,368 $229,740 $235,300
Europe 104,587 109,234 108,959
Eliminations (1,704) (973) (775)
- --------------------------------------------------------------------------------------------------------------------
$397,251 $338,001 $343,484
====================================================================================================================
Transfers between geographic areas are at prices in excess of cost and the
resultant income is assigned to the geographic area of manufacture. Interarea
income remaining in inventories is eliminated in consolidation.
- --------------------------------------------------------------------------------
Forward-Looking Information Safe Harbor
This Annual Report contains historical information and forward-looking
statements. Statements looking forward in time, including statements regarding
future growth and profitability, price increases, cost savings, broader product
lines, enhanced competitive posture and acquisitions, are included in this
Annual Report pursuant to the "safe harbor" provision 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 future periods to
be materially different from any future performance suggested herein. Further,
the Company operates in an industry sector where securities values may be
volatile and may be influenced by economic and other factors beyond the
Company's control. In the context of the forward-looking information provided in
this Annual Report, please refer to the discussions of risk factors detailed in,
as well as the other information contained in this Annual Report and the
Company's filings with the Securities and Exchange Commission during the past 12
months.
35
Six-Year Summary Selected Financial And Statistical Data
Year Ended December 31
(Thousands except per share data) 1996 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------------------
Income Statement Data:
Net sales $290,196 $291,898 $274,244 $269,424 $298,371 $308,373
Income (loss) from operations $ 33,752 $ 33,441 $(16,727) $ 33,015 $ 46,653 $ 61,258
Interest expense $ 752 $ 620 $ 752 $ 984 $ 1,347 $ 1,040
Net income (loss)(a) $ 21,638 $ 21,345 $ (8,609) $ 19,153 $ 17,983 $ 38,102
Percent of pretax income (loss) to sales 11.7% 11.0% (6.8)% 11.4% 14.7% 19.7%
Net income (loss) per common share(a) $ .54 $ .53 $ (.21) $ .47 $ .44 $ .94
Dividends declared per common share $ .32 $ .80 $ .16 $ .16 $ .16 $ .16
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at year end):
Working capital $ 68,670 $ 84,584 $ 83,279 $ 94,664 $ 74,659 $ 77,050
Total assets $397,251 $338,001 $343,484 $337,329 $334,518 $335,964
Long-term debt $ 65,837 $ 5,608 $ 6,401 $ 6,477 $ 6,797 $ 27,652
Treasury stock, at cost $ 20,066 $ 12,328 $ 12,328 $ 1,615 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Other Selected Data (at year end):
Return (loss) on average shareholders' equity 10% 10% (4)% 8% 8% 18%
Ratio of total debt to total capitalization 24% 6% 4 % 4% 5% 11%
Current ratio 204% 233% 226 % 347% 266% 266%
Effective tax rate 36.0% 33.8% (53.7)% 37.8% 34.9% 37.2%
Treasury stock 1,761 1,006 1,006 154 - -
Shares outstanding 39,675 40,419 40,419 40,949 40,904 40,749
Book value per outstanding common share $ 5.47 $ 5.40 $ 5.62 $ 6.03 $ 5.84 $ 5.67
Market value of common stock $ 12.25 $ 12.00 $ 10.00 $ 13.00 $ 17.63 $ 21.38
Price earnings ratio of stock prices 22.7 22.6 - 27.7 40.1 22.7
Capital expenditures $ 14,358 $ 12,676 $ 7,113 $ 15,114 $ 24,046 $ 70,571
Number of registered shareholders 984 1,102 1,306 1,470 1,503 1,410
Number of employees 1,297 1,097 1,267 1,320 1,480 1,513
- ----------------------------------------------------------------------------------------------------------------------------------
(a) After a charge in 1992 of $10.65 million or $.26 per share resulting from
the cumulative effect of a change in accounting principle for income taxes.
- --------------------------------------------------------------------------------
Quarterly Financial Data -- Unaudited
1996 1995
-------------------------------------------------- --------------------------------------------------
(Thousands except per
share data) 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $68,989 $74,945 $69,451 $76,811 $68,809 $75,968 $71,283 $75,838
Gross profit $25,760 $27,751 $26,239 $29,846 $24,640 $27,892 $27,004 $28,143
Net income $ 4,782 $ 6,085 $ 4,406 $ 6,365 $ 3,919 $ 6,051 $ 5,589 $ 5,786
================================================== ==================================================
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Data:
Net income per common share $ .12 $ .15 $ .11 $ .16 $ .10 $ .15 $ .14 $ .14
================================================== ==================================================
Average common shares
outstanding 40,419 40,419 40,417 39,816 40,419 40,419 40,419 40,419
================================================== ==================================================
- --------------------------------------------------------------------------------
Common Shares and Market Information
Common shares are traded on the New York Stock Exchange under the trading symbol
CCC. There were 984 registered shareholders at year end.
Quarterly Common Stock Price Ranges and Dividends
1996 1995
------------------------- -----------------------------
Fiscal Quarter High Low Dividend High Low Dividend
- -----------------------------------------------------------------------------------------------------------------------------
First (a) 13 10 3/4 $.080 11 1/2 10 $.575
Second 14 5/8 11 1/2 $.080 13 3/4 11 3/8 $.075
Third 14 9 1/2 $.080 12 5/8 11 $.075
Fourth 12 1/2 9 3/4 $.080 12 7/8 11 1/4 $.075
(a) In February of 1995, the Company paid a one-time special dividend of $.50
per share.
36