SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 1999 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
- ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 717, Pittsburgh, PA 15230-0717
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
(412) 787-6700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----- -----
Applicable only to corporate issuers:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 31,1999
- ----------------------------- ------------------------------
Common Stock, $.01 par value 38,802,132 shares
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED September 30, 1999
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. Specific examples of such
uncertainties include references to cost savings associated with restructuring
charges as well as estimated costs from Year 2000 compliance. In the context of
forward-looking information provided in this Form 10-Q and in other reports,
please refer to the discussion of risk factors detailed in, as well as the other
information contained in the Company's filings with the Securities and Exchange
Commission.
I N D E X
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PART 1 - FINANCIAL INFORMATION
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Item 1. -- Financial Statements
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Page
----
Introduction to the Financial Statements................... 2
Consolidated Statement of Income and
Retained Earnings.......................................... 3
Consolidated Balance Sheet................................. 4
Consolidated Statement of Cash Flows....................... 5
Selected Notes to Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Results
------ -----------------------------------------------
of Operations and Financial Condition...................... 8
-------------------------------------
PART II - OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders........ 15
------ ---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K........................... 15
------ --------------------------------
SIGNATURES............................................................. 16
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- 1 -
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
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, 1998.
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.
- 2 -
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Net sales........................................................................ $ 73,822 $ 72,636 $225,829 $227,857
-------- -------- -------- --------
Cost of products sold
(excluding depreciation)....................................................... 48,405 47,256 145,956 141,918
Depreciation and amortization.................................................... 5,714 5,405 17,568 16,266
Selling, general and
administrative expenses........................................................ 13,064 13,217 40,583 41,554
Research and development
expenses....................................................................... 1,941 2,227 5,828 6,363
Restructuring charges............................................................ - 7,626 - 7,626
-------- -------- -------- --------
69,124 75,731 209,935 213,727
-------- -------- -------- --------
Income (loss) from operations.................................................... 4,698 (3,095) 15,894 14,130
Interest income.................................................................. 31 62 65 149
Interest expense................................................................. (1,324) (1,196) (3,703) (3,642)
Other income (expense)--net...................................................... (324) (503) (992) (1,323)
-------- -------- -------- --------
Income (loss) before income taxes
and minority interest.......................................................... 3,081 (4,732) 11,264 9,314
Provision (benefit) for income
taxes.......................................................................... 1,113 (1,799) 4,066 3,423
-------- -------- -------- --------
Income (loss) before minority
interest....................................................................... 1,968 (2,933) 7,198 5,891
Minority interest................................................................ (168) 2 (112) (36)
-------- -------- -------- --------
Net income (loss)................................................................ 1,800 (2,931) 7,086 5,855
Common stock dividends........................................................... (3,104) (3,163) (9,306) (9,522)
Retained earnings, beginning
of period...................................................................... 162,995 170,702 163,911 168,275
-------- -------- -------- --------
Retained earnings, end of
period......................................................................... $161,691 $164,608 $161,691 $164,608
======== ======== ======== ========
Net income (loss) per common
share (basic and diluted)...................................................... $.05 $(.07) $.18 $.15
======== ======== ======== ========
Weighted average shares
outstanding.................................................................... 38,802,132 39,640,247 38,771,170 39,708,147
The accompanying notes are an integral part
of these financial statements.
- 3 -
CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
September 30, December 31,
1999 1998
--------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................... $ 3,835 $ 1,325
Receivables..................................... 60,684 56,463
Inventories..................................... 51,917 57,816
Other current assets............................ 13,780 14,236
-------- --------
Total current assets......................... 130,216 129,840
Property, plant and equipment, net................ 177,430 189,250
Intangibles....................................... 77,090 78,342
Other assets...................................... 8,620 9,562
-------- --------
Total assets................................. $393,356 $406,994
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year.............. $ 21,169 $ 22,131
Accounts payable and accrued liabilities........ 26,169 33,704
Restructuring reserve........................... 2,432 4,909
Payroll and benefits payable.................... 10,012 10,141
Accrued income taxes............................ 2,015 933
-------- --------
Total current liabilities.................... 61,797 71,818
Long-term debt.................................... 71,044 71,101
Deferred income taxes............................. 42,151 42,641
Other liabilities................................. 10,988 9,826
-------- --------
Total liabilities............................ 185,980 195,386
-------- --------
Minority interest................................. 1,809 1,622
-------- --------
Commitments and contingencies..................... - -
-------- --------
Shareholders' equity:
Common shares, $.01 par value, 100,000,000
shares authorized, 41,582,632 and 41,503,960
shares issued................................. 416 415
Additional paid-in capital...................... 63,371 62,868
Retained earnings............................... 161,691 163,911
Accumulated other comprehensive income.......... 7,204 9,778
-------- --------
232,682 236,972
Treasury stock, at cost, 2,780,500 and
2,761,500 shares.............................. (27,115) (26,986)
-------- --------
Total shareholders' equity................... 205,567 209,986
-------- --------
Total liabilities and
shareholders' equity....................... $393,356 $406,994
======== ========
The accompanying notes are an integral part
of these financial statements.
- 4 -
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
September 30,
--------------------
1999 1998
--------- ---------
Cash flows from operating activities
- ------------------------------------
Net income......................................... $ 7,086 $ 5,855
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization.................... 17,569 16,266
Non-cash restructuring asset write downs......... - 751
Employee benefit plan provisions................. 364 311
Changes in assets and liabilities - net of
effects from purchase of businesses, exchange
and non-cash restructuring asset write downs:
(Increase) decrease in receivables........... (4,748) 14,673
(Increase) decrease in inventories........... 4,663 (7,728)
Decrease in other current assets............. 317 596
Increase (decrease) in restructuring
reserve.................................... (2,470) 5,611
(Decrease) in accounts payable
and accruals............................... (4,912) (15,324)
Increase in long-term deferred
income taxes (net)......................... 2,399 1,763
Other items--net................................. 1,356 786
-------- --------
Net cash provided by
operating activities....................... 21,624 23,560
-------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of businesses........................... (791) (4,447)
Property, plant and equipment expenditures....... (7,213) (14,492)
Proceeds from disposals of equipment............. 920 269
-------- --------
Net cash (used in) investing activities........ (7,084) (18,670)
-------- --------
Cash flows from financing activities
- ------------------------------------
Net proceeds from (repayments of) borrowings..... (1,470) 6,018
Treasury stock purchases......................... (129) (3,367)
Common stock dividends........................... (9,307) (9,538)
-------- --------
Net cash (used in) financing
activities................................. (10,906) (6,887)
-------- --------
Effect of exchange rate changes on cash............ (1,124) 74
-------- --------
Increase (decrease) in cash and cash equivalents... 2,510 (1,923)
Cash and cash equivalents, beginning
of period........................................ 1,325 7,982
-------- --------
Cash and cash equivalents, end of period........... $ 3,835 $ 6,059
======== ========
The accompanying notes are an integral part
of these financial statements.
- 5 -
CALGON CARBON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Dollars in Thousands)
(Unaudited)
1. Inventories:
September 30, 1999 December 31, 1998
------------------ -----------------
Raw materials $12,683 $ 12,943
Finished goods 39,234 44,873
------- --------
$51,917 $ 57,816
======= ========
2. Supplemental Cash Flow Information:
Nine Months Ended September 30,
-------------------------------
1999 1998
------- --------
Cash paid during the period for:
Interest $ 3,994 $ 3,649
Income taxes, net of refunds $ 978 $ 7,351
======= ========
Bank debt:
Borrowings $ 6,057 $ 20,022
Repayments (7,527) (14,004)
------- --------
Net proceeds from (repayments of)
borrowings $(1,470) $ 6,018
======= ========
3. Common stock dividends declared during both quarters ended September 30, 1999
and 1998 were $.08 per common share.
4. Comprehensive Income:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1999 1998 1999 1998
------ ------- ------- -------
Net income (loss) $1,800 $(2,931) $ 7,086 $5,855
Other comprehensive income
(loss), net of tax (benefit)
of $679, $1,144, ($1,386)
and $977, respectively 1,261 2,125 (2,574) 1,814
------ ------- ------- ------
Comprehensive income (loss) $3,061 $ (806) $ 4,512 $7,669
====== ======= ======= ======
The only matter contributing to the other comprehensive income (loss) was the
currency translation adjustment.
- 6 -
5. Segment Information:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1999 1998 1999 1998
------- ------- -------- --------
Net Sales
Activated Carbon $68,265 $66,644 $206,388 $211,158
Engineered Systems 5,557 5,992 19,441 16,699
------- ------- -------- --------
$73,822 $72,636 $225,829 $227,857
======= ======= ======== ========
Income (loss) from operations
before amortization
Activated Carbon $ 5,013 $ 5,532 $ 16,035 $ 24,307
Engineered Systems 256 (402) 1,589 (751)
------- ------- -------- --------
5,269 5,130 17,624 23,556
Reconciling items
Restructuring charges - (7,626) - (7,626)
Amortization of intangibles
and organization costs (571) (599) (1,730) (1,800)
Interest income 31 62 65 149
Interest expense (1,324) (1,196) (3,703) (3,642)
Other expense - net (324) (503) (992) (1,323)
------- ------- -------- --------
Consolidated income (loss)
before income taxes and
minority interest $ 3,081 $(4,732) $ 11,264 $ 9,314
======= ======= ======== ========
- 7 -
Item 2. Management's Discussion and Analysis of Results of
- ------ --------------------------------------------------
Operations and Financial Condition
----------------------------------
This discussion should be read in connection with the information contained
in the Consolidated Financial Statements and Selected Notes to Financial
Statements.
Results of Operations
- ---------------------
Consolidated net sales for the three-month period ended September 30, 1999
increased $1.2 million, or 1.6%, versus the three months ended September 30,
1998. For the nine-month period ended September 30, 1999, consolidated net
sales decreased by $2.0 million or 0.9% as compared to the same period of 1998.
Refer to the table below for sales detail by segments/products, markets and
geography for both periods. These amounts are in thousands of dollars:
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
1999 1998 %Change 1999 1998 % Change
------- ------- ------- -------- -------- -------
Segments/Products
- -----------------
Activated Carbon Segment
Carbon $37,824 $35,686 + 6.0% $107,662 $112,807 - 4.6%
Service 20,669 21,413 - 3.5 67,587 66,995 + 0.9
Carbon Equipment 5,726 5,525 + 3.6 17,215 15,077 + 14.2
Charcoal and Liquid 4,046 4,020 + 0.6 13,924 16,279 - 14.5
------- ------- ------- -------- -------- ------
68,265 66,644 + 2.4 206,388 211,158 - 2.3
------- ------- ------- -------- -------- ------
Engineered Systems Segment
Advanced Oxidation Tech. 1,691 1,850 - 8.6 6,193 5,745 + 7.8
Advanced Separation Tech. 3,866 4,142 - 6.7 13,248 10,954 + 20.9
------- ------- ------- -------- -------- ------
5,557 5,992 - 7.3 19,441 16,699 + 16.4
------- ------- ------- -------- -------- ------
TOTAL $73,822 $72,636 + 1.6% $225,829 $227,857 - 0.9%
======= ======= ======= ======== ======== ======
Markets
- -------
Industrial
Food $11,261 $12,281 - 8.3% $ 35,001 $ 36,874 - 5.1%
Chemical/Pharmaceutical 5,567 6,688 - 16.8 17,953 17,491 + 2.6
Original Equipment
Manufacturer 12,821 12,964 - 1.1 36,852 41,853 - 11.9
Other 5,198 5,804 - 10.4 15,542 18,639 - 16.6
------- ------- ------- -------- -------- --------
34,847 37,737 - 7.7 105,348 114,857 - 8.3
------- ------- ------- -------- -------- --------
Environmental
Municipal 16,845 13,459 + 25.2 50,315 42,355 + 18.8
Industrial 18,084 17,420 + 3.8 56,242 54,366 + 3.5
------- ------- ------- -------- -------- ------
34,929 30,879 + 13.1 106,557 96,721 + 10.2
------- ------- ------- -------- -------- ------
Consumer 4,046 4,020 + 0.6 13,924 16,279 - 14.5
------- ------- ------- -------- -------- ------
TOTAL $73,822 $72,636 + 1.6% $225,829 $227,857 - 0.9%
======= ======= ======= ======== ======== ======
Geography
- ---------
United States $40,857 $41,923 - 2.5% $125,288 $123,050 + 1.8%
Europe 18,638 20,646 - 9.7 66,453 64,460 + 3.1
Other 14,327 10,067 + 42.3 34,088 40,347 - 15.5
------- ------- ------- -------- -------- ------
TOTAL $73,822 $72,636 + 1.6% $225,829 $227,857 - 0.9%
======= ======= ======= ======== ======== ======
Note: Sales, by product, for 1998, have been reclassified to conform with the
1999 presentation.
- 8 -
For the quarter, within the activated carbon segment, sales of carbon, carbon
equipment and charcoal increased while revenues from service declined. These
results included a net negative impact associated with foreign exchange of $0.2
million due primarily to the strengthening of the U.S. dollar versus the Belgian
franc, British pound sterling and the German deutsche mark partially offset by
its weakening as compared to the Japanese yen. The decrease within the
engineered systems segment was associated with lower sales levels by both the
Advanced Oxidation Technologies and the Advanced Separation Technologies units.
The increase in sales of carbon products was primarily due to improvements in
exports to Asia and to increased revenues for the Company's joint venture,
Calgon Far East Co. Ltd. The favorable change in the carbon equipment category
was due to increases in the environmental markets. Service sales declined due to
reduced activity in the industrial environmental and food markets. Overall,
both units within the engineered systems segment felt the effect of delays in
the awarding of contracts. New product sales (sales of products introduced
within the past 5 years), as a percentage of total sales, was 15% during the
quarter ended September 30, 1999 compared to 11% for the similar period ended
September 30, 1998. For the year-to-date period, the activated carbon segment
experienced sales increases within the service and carbon equipment categories
and declines in the carbon and charcoal areas. These results included net gains
due to foreign exchange rate changes of $0.1 million, the net effect of the
weakening of the U.S. dollar versus the Japanese yen partially offset by its
strengthening as compared to the Belgium franc, British pound sterling and the
German deutsche mark. This nine-month change included increases within the
carbon equipment category due to increased demand in the U.S. environmental
municipal and industrial categories. Decreases were experienced for carbon
products due to the net result of the non repeat of initial fills in the
Japanese municipal category and to decreases within the U.S. food and original
equipment manufacture categories partially offset by increases in the U.S. and
European municipal markets. Charcoal sales decreased due to business lost to
competitors. Within the engineered systems segment, revenues for the Advanced
Oxidation Technologies unit were up due to increases associated with multiple
technology products and revenue increases for the Advanced Separation
Technologies area are associated with orders received in the first quarter of
1999. The backlog for this segment has decreased by $2.5 million from December
31, 1998. New product sales, as a percentage of total sales, were 17% during
the nine months ended September 30, 1999 versus 12% for the nine months ended
September 30, 1998.
Gross profit, before depreciation, as a percentage of net sales, for the three
and nine months ended September 30, 1999 were 34.4% and 35.4%, respectively.
These compare to 34.9% and 37.7%, respectively, for the three and nine-month
periods ended September 30, 1998. The decline in the activated carbon segment
for both periods was related to charges associated with the Company's inventory
reduction plan, competitive pressure on pricing, reduced activated carbon sales
versus relatively fixed manufacturing costs and shifts in sales to higher cost
products than were sold in 1998. For both the quarter and nine-month period,
this percentage rate improved for both units within the engineered systems
segment versus the comparable periods in 1998 due to sales of more profitable
projects, continued cost control and better project management practices. Both
segments benefitted from increases associated with cost reductions due to the
1998 restructuring of operations.
Depreciation and amortization expenses increased by $0.3 million and $1.3
million, respectively, in the three and nine-month periods ended September 30,
1999 versus the comparable periods in 1998 primarily due to depreciation
associated with the Company's new business information system.
- 9 -
Combined, selling, general and administrative expenses and research and
development expenses, were down by $0.4 million versus the similar 1998 quarter.
This net reduction was primarily the net effect the write off of accounts
receivables more than offset by two months of savings associated with the early
September 1998 restructuring of operations. For the nine months ended September
30, 1999, these expenses were down by $1.5 million resulting primarily from
eight months savings from the restructuring of operations in 1998 partially
offset by organizational and CEO recruitment costs of $1.4 million in the second
quarter of 1999 and the aforementioned accounts receivable related charges.
Research and development expenses, as a percentage of net sales, were 2.6% for
both the three and nine-month periods ended September 30, 1999 versus 3.1% and
2.8%, respectively, for the comparable 1998 periods.
Interest expense increased by $0.1 million during the three months ended
September 30, 1999 versus the three-month period ended September 30, 1998 due to
both increases in debt and increased interest rates.
The effective tax rate for the three-month period ended September 30, 1999 was
36.1% versus a benefit of (38.0%) for the three months ended September 30, 1998.
The benefit was generated as the result of the restructuring charge in the 1998
quarter. For the nine months ended September 30, 1999, the effective tax rate
was 36.1% as compared to 36.8% for the 1998 period. The year-to-date reduction
was related to higher utilization of foreign tax credits.
Financial Condition
- -------------------
Working Capital and Liquidity
-----------------------------
Cash flows from operating activities were $21.6 million for the nine months
ending September 30, 1999 versus $23.6 million for the comparable 1998 period.
The reduction was due primarily to increased investment in working capital,
versus the 1998 period, partially offset by improved net income and an increase
in depreciation associated with the new business information system.
The working capital investment was primarily due to increased receivables and
decreased payables and accruals which were partially offet by inventory
reductions consistent with the improved utilization program currently in effect
within the Company. The Company expects to reduce its inventory levels further
during the balance of 1999 by additional specific actions that will have a
negative effect on short-term earnings but benefit future economic profits. The
new information system will also allow better balance of product output with
expected sales activity. The Company's restructuring reserve decreased $2.5
million due to cash outlays for employee severance costs and benefits in
connection with the 1998 restructuring plan. The net impact of foreign currency
translation decreased working capital by $1.0 million reflecting spot foreign
exchange rates at September 30, 1999 and December 31, 1998.
Total debt at September 30, 1999 was $92.2 million, a decrease of $1.0 million
versus December 31, 1998.
- 10 -
During the second quarter of 1999, the Company entered into a new revolving
United States credit facility. This new facility replaces the previous ones
which, in total, had a borrowing availability of $100.0 million. The new, multi
bank, credit agreement consists of a $114.6 million five-year revolving credit
facility and a $50.4 million 364-day revolving credit facility. Included in this
facility is a letter of credit subfacility which may not exceed $30.0 million.
The Company expects that cash from operating activities plus cash balances and
available external financing will be sufficient to meet its requirements.
Restructuring of Operations
- ---------------------------
In the third quarter of 1998, the Company initiated a worldwide plan to
reduce costs and realign the organizational structure. The charge associated
with this restructuring was $7.6 million. The implementation began in September
1998 and was expected to be completed by mid 1999. With the exception of the
asset write offs, these restructuring charges required cash outlays. This plan
is expected to reduce costs by approximately $10 million on an annualized basis
when fully implemented. The number of planned employee separations from this
restructuring was 131. Actual separations approximated that number. The staff
reductions associated with this plan are now complete although associated
payments are not. The majority of these payments will be made prior to the end
of 1999, but some will be made in the year 2000.
During the fourth quarter of 1998, the Company concluded its 1994 restructuring
plan by transferring ownership of the Brilon Wald, Germany plant to the local
community. The plant was shut down in 1995.
The restructuring reserve activity for the nine months ended September 30, 1999
was:
Balance Balance
($000) 1-1-99 Payments Exchange 9-30-99
------- -------- -------- --------
1998 Plan
- ---------
Employee severance and
termination benefit
costs $ 4,393 $(2,282) $ -- $ 2,111
Other costs 407 (150) -- 257
------- ------- -------- --------
4,800 (2,432) -- 2,368
1994 Plan
- --------------------------
Disposition costs
associated with the
closing of the Brilon
Wald, Germany Plant 109 (38) (7) 64
------- ------- -------- --------
$ 4,909 $(2,470) $ (7) $ 2,432
======= ======= ======== ========
The reserve balances are deemed adequate.
- 11 -
Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment totaled $7.2 million
for the nine-month period ended September 30, 1999 compared to expenditures of
$14.5 million for the same period in 1998. The decrease was primarily due to a
lower level of expenditures associated with the new business information system.
Investment in the new business information system accounted for $1.9 million of
the 1999 expenditures while domestic customer capital expenditures were $0.6
million and capacity and cost reduction related spending was $1.6 million in the
United States and $1.3 million in Europe. Total capital expenditures are
currently expected to be approximately $11.0 million for the year 1999.
The purchase of business expenditures, for both periods, represents the
continuation of previously accrued cash expenditures for Advanced Separation
Technologies (a 1996 acquisition) project failures for projects completed before
the acquisition.
Year 2000
- ---------
The Company has continued to address the Year 2000 issues related to both
information technology and non-information technology aspects. The following
discussion is a description of activities, results and expectations on each of
these fronts.
General Comments
- ----------------
A task force was established in 1997 to identify all potential areas of
material risk and to make required modifications as they relate to business
computer systems, technical infrastructure, end user computing, suppliers,
customers and manufacturing systems.
Key suppliers of material, services and equipment have been surveyed regarding
their Year 2000 compliance and they are all now Year 2000 ready.
Further, all purchase orders for new software and/or hardware include a
statement, that by acceptance of the purchase order, the vendor is certifying
compliance.
Business contingency plans were developed for all locations to mitigate risks
associated with potential loss of utilities, wide-area networks, etc.
During the fourth quarter, all Year 2000 preparations and compliance work will
be reviewed one more time. All key personnel will be immediately accessible on
January 1, 2000, should any of the contingency plans need to be activated.
Information Technology
- ----------------------
To ensure Year 2000 compliance, the Company engaged in a program to
modernize and replace its computerized production control and management
information systems with SAP. SAP is an enterprise wide business system that
was installed to replace the previous legacy system. Although Year 2000
compliance was not the primary purpose of the program, the new system was fully
implemented in the U.S. and Europe and is Year 2000 ready. Final testing of
SAP's Year 2000 compliance was completed in May 1999.
Included in the above activity is the replacement of the existing human resource
system. This task will be completed during the fourth quarter of 1999.
- 12 -
No known supplier issues are involved.
Year 2000 compliance audit of the Company's personal computers and related
software is complete. All non-compliant personal computers have been replaced,
remediated or will be replaced before December 31, 1999. The final installation
of year 2000 software patches will be applied to all personal computers before
December 1, 1999.
Additional costs for Year 2000 compliance are not expected to be material to the
operating results.
Non-Information Technology
- --------------------------
The Company has established a task team to identify and resolve the
millennium date rollover issues in its manufacturing processes worldwide. This
focus is on process related technology and other devices with embedded
microprocessors which are used to control the manufacturing processes or operate
security, communication, or building services. The initial phase of planning
and awareness was completed in early 1998. The inventory phase was completed
during the second quarter of 1998 for both the Domestic and European
manufacturing facilities. The compliance status of all devices has been
determined. Approximately 95% of all devices are compliant. Detailed
definition and implementation of solutions was completed during the second
quarter of 1999.
During the third quarter of 1999, full scale system tests were successfully
conducted on the acid wash and E-line operations at the Big Sandy Plant. Where
required, compliant software was loaded into the control systems during August
and September. The new Bodenfelde software was successfully tested during
September. As of September 30, 1999, all of the Domestic and European
manufacturing facilities are Year 2000 compliant and all potentially affected
systems have been tested.
The Domestic and European plants have completed contingency planning for
possible failures in the utility supply systems. Some of the plants will shut
down critical manufacturing operations on December 31, 1999, and re-start them
on January 1, 2000 to assess if problems exist. Because the plants have ample
in-process storage capacity, overall production will not be impacted.
It now appears that the cost of evaluating compliance and bringing non-complying
systems up-to-date will be between $0.6 million and $0.7 million. This is in
line with previous estimates.
The task team has made efforts to ensure that all devices will be Year 2000
ready, however, it is not possible to guarantee the results at this point. It is
expected that all manufacturing operations will be ready and operable. However,
if a significant uncertainty arises at any time, a plan will be developed to
focus efforts on those devices critical to operation of the production
process(es). Devices that are informational only or non-critical to operation
will then be deferred until the operability of the process(es) is ensured.
The Company anticipates that the most likely worst case Year 2000 scenario, if
one were to occur, would be the inability of third party suppliers, such as
utility providers, telecommunication companies, and other critical suppliers to
continue providing their products and services. This possible scenario could
pose the most significant threat to the operation of the Company's facilities
along with associated environmental and potential financial consequences. If
this would occur, new suppliers would be contacted immediately.
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Discussion of the Company's efforts and management's expectations relating to
Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated with
compliance could be adversely impacted by, among other matters, the availability
and cost of programming and testing resources, vendors' ability to modify
software, and unanticipated problems identified in the ongoing compliance
review. The Company has little or no control over the actions of the
proprietary software vendors and other entities with which it interacts.
Therefore, Year 2000 compliance problems experienced by these entities could
adversely affect the operating results of the Company.
New Accounting Pronouncements
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("FAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This new standard requires recognition of
all derivatives as either assets or liabilities at fair value. This new
standard may result in additional volatility in both current period earnings and
other comprehensive income as a result of recording recognized and unrecognized
gains and losses resulting from changes in the fair value of derivative
instruments. At adoption this new standard requires a comprehensive review of
all outstanding derivative instruments to determine whether or not their use
meets the hedge accounting criteria. It is possible that there will be
derivative instruments employed in our businesses that do not meet all of the
designated hedge criteria and they will be reflected in income on a mark-to-
market basis. Based upon the strategies currently used by the Company and the
level of activity related to forward exchange contracts and commodity-based
derivative instruments in recent periods, the Company does not anticipate the
effect of adoption to have a material impact on either financial position or
results of operations. The effective date of FAS No. 133 was amended by FAS No.
137. The Company plans to adopt the standard effective January 1, 2001, as
required.
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PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
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None
Item 6. Exhibits and Reports on Form 8-K
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(c) Exhibits
None
(d) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1999.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CALGON CARBON CORPORATION
-------------------------
(REGISTRANT)
Date: November 12, 1999 By /s/William E. Cann
--------------------------------
William E. Cann
Senior Vice President,
Chief Financial Officer
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