SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended March 31, 1998 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 0-15903
CALGON CARBON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 25-0530110
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 717, Pittsburgh, PA 15230-0717
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(Address of principal executive offices)
(Zip Code)
(412) 787-6700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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 May 5, 1998
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Common Stock, $.01 par value 39,742,660 shares
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED March 31, 1998
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. In the context of forward-looking
information provided in this Form 10-Q and in other reports, please refer to the
discussion of risk factors detailed in, as well as the other information
contained in the Company's filings with the Securities and Exchange Commission.
I N D E X
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PART 1 - FINANCIAL INFORMATION
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Item 1. Financial Statements
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Page
----
Introduction to the Financial Statements........ 2
Consolidated Statement of Income and
Retained Earnings............................... 3
Consolidated Balance Sheet...................... 4
Consolidated Statement of Cash Flows............ 5
Selected Notes to Financial Statements.......... 6
Report of Independent Accountants on Review of
Unaudited Interim Financial Information......... 7
Item 2. Management's Discussion and Analysis of Results
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of Operations and Financial Condition........... 8
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PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security
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Holders......................................... 12
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Item 6. Exhibits and Reports on Form 8-K................ 12
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SIGNATURES.................................................. 13
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements
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INTRODUCTION TO THE FINANCIAL STATEMENTS
----------------------------------------
The consolidated financial statements included herein have been prepared by
Calgon Carbon Corporation (the Company), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the Company's consolidated financial statements and the
notes included therein for the year ended December 31, 1997.
The financial information presented reflects all adjustments, consisting
only of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The results for interim periods are not necessarily indicative of results to be
expected for the year.
Price Waterhouse LLP has reported that they have applied limited procedures
in accordance with professional standards for a review of the unaudited
consolidated financial statements included in this filing on Form 10-Q.
However, their report included on page 7 of this report on Form 10-Q for the
quarter ended March 31, 1998 states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provisions of section 11 of the Securities Act
(the Act) of 1933 for their report on the unaudited interim financial
information because that report is not a "report" or a "part" of the
registration statement prepared or certified by the accountants within the
meaning of sections 7 and 11 of the Act.
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CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
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(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
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Net sales........................ $ 69,508 $ 79,892
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Cost of products sold
(excluding depreciation)....... 42,323 49,019
Depreciation and amortization.... 5,450 5,398
Selling, general and
administrative expenses........ 13,791 13,551
Research and development
expenses....................... 1,967 1,901
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63,531 69,869
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Income from operations........... 5,977 10,023
Interest income.................. 34 99
Interest expense................. (1,175) (929)
Other income (expense)--net...... (431) (474)
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Income before income taxes and
minority interest............. 4,405 8,719
Provision for income taxes....... 1,648 3,287
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Income before minority interest.. 2,757 5,432
Minority interest................ (32) -
-------- --------
Net income....................... 2,725 5,432
Common stock dividends........... (3,179) (3,174)
Retained earnings, beginning
of period...................... 170,974 162,098
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Retained earnings, end of
period......................... $170,520 $164,356
======== ========
Net income per common share
(basic and diluted)............. $ .07 $ .14
======== ========
Weighted average shares
outstanding.....................39,742,660 39,674,660
========== ==========
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
March 31, December 31,
1998 1997
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents................... $ 7,714 $ 7,982
Receivables................................. 59,170 67,888
Inventories................................. 56,839 50,954
Other current assets........................ 14,697 16,731
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Total current assets...................... 138,420 143,555
Property, plant and equipment, net........... 187,869 188,082
Intangibles.................................. 80,493 80,971
Other assets................................. 11,237 10,849
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Total assets.............................. $418,019 $423,457
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year.......... $ 17,626 $ 9,617
Accounts payable and accrued liabilities.... 36,653 47,563
Restructuring reserve....................... 6,046 6,282
Payroll and benefits payable................ 14,579 14,252
Accrued income taxes........................ 3,896 4,625
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Total current liabilities................. 78,800 82,339
Long-term debt............................... 71,948 72,297
Deferred income taxes........................ 38,748 38,900
Other liabilities............................ 6,315 6,463
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Total liabilities......................... 195,811 199,999
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Minority interest............................ 1,342 1,378
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Commitments and contingencies................ - -
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Shareholders' equity:
Common shares, $.01 par value, 100,000,000
shares authorized, 41,503,960
shares issued.............................. 415 415
Additional paid-in capital.................. 62,868 62,868
Retained earnings........................... 170,520 170,974
Cumulative translation adjustments.......... 7,129 7,889
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240,932 242,146
Treasury stock, at cost, 1,761,300 shares... (20,066) (20,066)
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Total shareholders' equity................ 220,866 222,080
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Total liabilities and
shareholders' equity..................... $418,019 $423,457
======== ========
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
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(Dollars in Thousands)
(Unaudited)
Three Months Ended
March 31,
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1998 1997
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Cash flows from operating activities
- ------------------------------------
Net income........................................... $ 2,725 $ 5,432
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization...................... 5,450 5,398
Employee benefit plan provisions................... 102 121
Changes in assets and liabilities - net of
effects from purchase of businesses and
exchange:
(Increase) decrease in receivables............. 8,328 (3,798)
(Increase) in inventories...................... (6,567) (3,904)
(Increase) decrease in other current assets . 2,037 (1,626)
(Decrease) in restructuring reserve............ (46) (90)
(Decrease) in accounts payable
and accruals................................. (11,009) (472)
(Decrease) in long-term deferred
income taxes (net)........................... (91) (56)
Other items--net................................... (207) 523
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Net cash provided by
operating activities......................... 722 1,528
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Cash flows from investing activities
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Purchase of businesses............................. - (500)
Property, plant and equipment expenditures......... (5,768) (6,082)
Proceeds from disposals of equipment............... 134 180
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Net cash (used in) investing activities.......... (5,634) (6,402)
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Cash flows from financing activities
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Net proceeds from borrowings....................... 7,815 3,325
Common stock dividends............................. (3,179) (3,174)
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Net cash provided by financing activities....... 4,636 151
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Effect of exchange rate changes on cash.............. 8 (510)
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(Decrease) in cash and cash equivalents.............. (268) (5,233)
Cash and cash equivalents, beginning
of period.......................................... 7,982 15,439
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Cash and cash equivalents, end of period............. $ 7,714 $10,206
======== =======
The accompanying notes are an integral part
of these financial statements.
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CALGON CARBON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
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(Dollars in Thousands)
(Unaudited)
1. Inventories:
March 31, 1998 December 31, 1997
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Raw materials $11,169 $12,566
Finished goods 45,670 38,388
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$56,839 $50,954
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2. Supplemental Cash Flow Information:
Three Months Ended March 31,
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1998 1997
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Cash paid during the period for:
Interest $ 1,192 $ 684
Income taxes, net of refunds $ 1,382 $ 2,251
======= =======
Bank debt:
Borrowings $13,101 $ 7,724
Repayments (5,286) (4,399)
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Net proceeds from borrowings $ 7,815 $ 3,325
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3. Common stock dividends declared during both quarters ended March 31, 1998 and
1997 were $.08 per common share.
4. In compliance with SFAS No. 130 "Reporting Comprehensive Income", total
comprehensive net income for the three-month period ended March 31, 1998
amounted to $1,965. Total comprehensive net income was derived from net
income of $2,725 and other comprehensive losses of $760. The only matter
contributing to the other comprehensive loss was the currency translation
adjustment.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of
Calgon Carbon Corporation
We have reviewed the consolidated balance sheet of Calgon Carbon Corporation and
its subsidiaries as of March 31, 1998 and the related consolidated statements of
income and retained earnings and of cash flows for the three-month periods ended
March 31, 1998 and 1997. This financial information is the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical review procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial information for it to be in
conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for the
year then ended (not presented herein), and in our report dated February 3,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the accompanying consolidated balance sheet
information as of December 31, 1997 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
PRICE WATERHOUSE LLP
Pittsburgh, PA
May 8, 1998
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Item 2. Management's Discussion and Analysis of Results of
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Operations and Financial Condition
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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
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Consolidated net sales for the three-month period ended March 31, 1998
decreased $10.4 million, or 13.0%, versus the three months ended March 31, 1997.
Refer to the table below for sales detail by market, product and geography.
These amounts are in thousands of dollars:
Market 1998 1997 Change
- ------ ------- ------- -------
Industrial
Food $11,013 $15,100 -27.1%
Chemical/Pharmaceutical 5,289 6,767 -21.8
Original Equipment Manufacturer 13,524 12,180 +11.0
Other 6,219 8,177 -23.9
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36,045 42,224 -14.6
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Environmental
Municipal 12,228 14,412 -15.2
Industrial 17,478 19,242 - 9.2
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29,706 33,654 -11.7
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Consumer 3,757 4,014 - 6.4
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TOTAL $69,508 $79,892 -13.0%
======= ======= =====
Product
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Carbon $36,416 $37,909 - 3.9%
Service 22,608 22,916 - 1.3
Equipment 6,727 15,053 -55.3
Consumer 3,757 4,014 - 6.4
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TOTAL $69,508 $79,892 -13.0%
======= ======= =====
Geography
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U.S. $37,449 $40,488 - 7.5%
Europe 18,364 26,589 -30.9
Other 13,695 12,815 + 6.9
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TOTAL $69,508 $79,892 -13.0%
======= ======= =====
Advanced Separation Technologies (AST) accounted for the most significant
portion of the decline with a 79.7% decrease in sales from the first quarter of
1997. Product performance and reliability difficulties stemming from equipment
in fabrication or shipped prior to that unit's acquisition by the Company
adversely affected sales and order levels. The decline is expected to moderate
in the second quarter of 1998 as AST's backlog, which includes significant sales
contracts from repeat customers, has rebounded and should translate to more
normal sales levels in the second quarter of 1998 and beyond. European sourced
sales (excluding Advanced Oxidation Technologies (AOT) and AST in Europe)
declined $4.6 million, or 18.5% when compared to the year-ago period after
adjusting for the foreign currency translation effect which resulted in a $1.3
million further reduction in the current period vis-a-
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vis first quarter 1997. This year-to-year decline in European sourced sales was
primarily the result of lower initial plant fills for potable water customers
in the current period which more than offset sales gains in food processing,
chemical pharmaceutical and original equipment manufacture's (OEM) markets. In
addition, sales to industrial environmental customers declined due to non-repeat
equipment sales. Sales of the recently acquired Charcoal Cloth unit increased
29.7% in the first quarter of 1998 as compared to the first quarter of 1997.
Worldwide, AOT sales declined slightly in the three-month period ended March 31,
1998. However, the contract backlog has quadrupled since year-end 1997.
Included in this backlog are two orders totaling $.6 million for the new Aurora
UVTM systems which utilize ultraviolet light (UV) for treatment of wastewater.
Overall, new product sales (sales of products introduced in the past sixty
months) were 10% of total sales in the first quarter of 1998 versus 11% for the
comparable period in 1997.
Gross profit, before depreciation, as a percentage of net sales, for the three-
month period ended March 31, 1998 was 39.1% compared to 38.6% for the three
months ended March 31, 1997. This .5 percentage point increase is the result of
lower maintenance and repair expense in the first quarter of 1998 versus the
comparable period in 1997.
Depreciation and amortization for the three-month period ended March 31, 1998
increased $.1 million versus the comparable 1997 period due primarily to
increased goodwill amortization associated with the 1996 acquisition of AST.
This increase will continue in future periods.
Selling, general and administrative expenses for the three-month period ended
March 31, 1998 increased $.2 million over the comparable period in 1997.
Included in this increase are $1.0 million in legal fees relating to the Powell
Duffryn and AST litigations. Selling, general and administrative expenses
remained relatively level excluding these legal fees. Research and development
costs remained level at $2.0 million in the first quarter of 1998. The relative
stability of these expenses reflects successful cost control measures instituted
by the Company during the first quarter of 1998.
Interest income for the three-month period ended March 31, 1998 decreased $.1
million versus the comparable period in 1997. Interest expense increased $.2
million over the first quarter of 1997 due to higher utilization of short-term
credit lines in the first quarter of 1998. In addition, the first quarter of
1998 includes $.1 million in interest expense for the Calgon Far East operations
which under the equity method of accounting was not reported as interest expense
in the first quarter of 1997. The borrowing rate for the three-month periods
ended March 31, 1998 and 1997 was 5.3%.
The effective tax rate for the three-month period ended March 31, 1998 was 37.4%
versus 37.7% for the three months ended March 31, 1997. The decrease is
comprised of increases in state tax rates more than offset by an increase in
foreign tax credits.
Net income after tax for the three-month period ended March 31, 1998 was $2.7
million versus $5.4 million for the three months ended March 31, 1997. Of the
$2.7 million, or 49.8% decrease, $1.7 million occurred at AST while an
additional $.9 million is attributed to the drop off in first quarter sales
activity in Europe. The final contributing factor involved the $1.0 million in
legal expenses incurred in the first quarter
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of 1998 that were not incurred in the comparable period. It is anticipated that
legal expenses for future quarters will be substantially less due to the recent
favorable Motion of Summary Judgement which has been granted in the litigation
with Powell Duffryn Terminals, Inc.
Financial Condition
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Working Capital and Liquidity
-----------------------------
Net cash provided by operating activities was $.7 million for the three
months ended March 31, 1998, primarily from net earnings before non-cash charges
of depreciation and amortization offset by increased investment in working
capital.
The working capital increase was caused by seasonally increased inventory levels
and decreased payables and was offset by lower receivables and other current
assets. Currently maturing debt and short-term borrowings increased $8.0
million to $17.6 million at March 31, 1998. The impact of foreign currency
translation resulting from the strengthening of the U.S. dollar reduced working
capital by $.5 million.
Total debt at March 31, 1998 was $89.6 million, an increase of $7.7 million,
primarily resulting from increased short-term borrowings for working capital
usage. The Company's existing credit availability is principally from its
United States and German credit facilities. At March 31, 1998, unused and
available credit was $37.7 million under its two 364-day United States revolving
credit lines and 25 million German Marks ($13.5 million) from its German credit
facility.
The Company expects that cash from operating activities plus cash balances and
available external financing will be sufficient to meet its operating, dividend
and capital requirements.
Restructuring of Operations
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In the fourth quarter of 1994, the Company established a restructuring plan
relating principally to the estimated demolition costs associated with the
Brilon-Wald, Germany plant. The March 31, 1998 reserve of $6.0 million is
deemed adequate.
Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment totaled $5.8
million for the three-month period ended March 31, 1998 compared to expenditures
of $6.1 million for the same period in 1997. Investment in new information
systems accounted for $2.2 million of these expenditures while $1.6 million and
$1.1 million were expended on cost reduction efforts in the U.S. and Europe,
respectively. Total capital expenditures are currently expected to be $20.0 to
$24.0 million for the year 1998.
1997 cash flows for business purchases includes $.5 million relating to a
purchase price adjustment for Advanced Separation Technologies Incorporated.
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Year 2000
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The Company is engaged in a program to modernize and replace its
computerized production control and management information systems. Although
not the primary purpose of the program, the new systems are scheduled to be in
place by mid-1999 and are expected to be Year 2000 compliant. A task force has
been established to identify other potential areas of risk related to Year 2000
issues. Based on information available at this time, management believes that
the incremental costs associated with achieving Year 2000 compliance will not be
material to the operating results.
Discussion of the Company's efforts and managements expectations relating to
Year 2000 compliance are forward-looking statements, therefore, actual results
to achieve Year 2000 compliance may differ from that suggested herein.
New Accounting Pronouncements
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In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for the way
companies report information about operating segments in annual financial
statements and requires disclosure of selected information about operating
segments in interim financial reports issued to shareholders. The Statement also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The Statement requires companies to report
financial and descriptive information about its reportable operating segments
for periods beginning after December 15, 1997. The Company is currently
identifying its reportable segments and expects to adopt the Statement and
disclose segment information in the annual report for the year ending December
31, 1998. Adoption of the Statement is expected to impact only financial
statement disclosures.
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PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
15 Letter from Price Waterhouse LLP regarding
unaudited interim financial information.
(b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended March 31,
1998.
Current report - dated February 24, 1998
Press Release reporting the resignation of President, Chief Executive
Officer and Director, Colin Bailey and the engagement of Morgan Stanley
& Co. Incorporated to explore alternatives by which shareholder value
might be enhanced.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGON CARBON CORPORATION
--------------------------------
(REGISTRANT)
Date: May 8, 1998 By /s/William P. Mooney
-----------------------------
William P. Mooney
Senior Vice President and
Chief Financial Officer
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