UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2002 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange
act of 1934 for the transition period from _______ to _______
Commission file number 1-15903
CALGON CARBON CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 25-0530110
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 717, Pittsburgh, PA 15230-0717
----------------------------------------
(Address of principal executive offices)
(Zip Code)
(412) 787-6700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- ------------
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
----------- ------------
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 July 26, 2002
- ---------------------------------- ----------------------------
Common Stock, $.01 par value 38,962,758 shares
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED June 30, 2002
The Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Company's actual results in the future to
differ from performance suggested herein. A specific example of such
uncertainties includes references to reductions in working capital. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in the Company's filings with the Securities and
Exchange Commission.
I N D E X
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PART 1 - FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements Page
------ ----
Introduction to the Financial Statements ............ 2
Consolidated Statements of Income (Loss) and
Retained Earnings ................................... 3
Consolidated Balance Sheets ......................... 4
Consolidated Statements of Cash Flows ............... 5
Selected Notes to Financial Statements .............. 6
Item 2. Management's Discussion and Analysis of Results
------ -----------------------------------------------
of Operations and Financial Condition .................. 12
-------------------------------------
PART II - OTHER INFORMATION
- ------- -----------------
Item 1. Legal Proceedings ...................................... 16
------ -----------------
Item 4. Submission of Matters to a Vote of Security Holders .... 16
------- ---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K ....................... 16
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SIGNATURES .............................................................. 17
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1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
INTRODUCTION TO THE FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements included herein
have been prepared by Calgon Carbon Corporation (the Company), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations. Management of the Company believes that the
disclosures are adequate to make the information presented not misleading when
read in conjunction with the Company's audited consolidated financial statements
and the notes included therein for the year ended December 31, 2001 filed with
the Securities and Exchange Commission by the Company in Form 10-K.
In management's opinion, the unaudited interim consolidated financial
statements reflect all adjustments, which are of a normal and recurring nature,
which are necessary for a fair presentation, in all material respects, of
financial results for the interim periods presented. Operating results for the
first six months of 2002 are not necessarily indicative of the results that may
be expected for the year ending December 31, 2002.
2
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND RETAINED EARNINGS
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales ........................................ $ 67,484 $ 74,899 $ 130,620 $ 141,817
------------ ------------ ------------ ------------
Cost of products sold
(excluding depreciation) ....................... 46,382 49,805 89,925 93,181
Depreciation and amortization .................... 4,629 4,967 9,243 9,974
Selling, general and administrative expenses ..... 11,495 11,785 22,359 23,290
Research and development expenses ................ 1,106 1,580 2,148 2,873
------------ ------------ ------------ ------------
63,612 68,137 123,675 129,318
------------ ------------ ------------ ------------
Income from operations ........................... 3,872 6,762 6,945 12,499
Interest income .................................. 147 25 258 50
Interest expense ................................. (674) (982) (1,298) (2,091)
Other income (expense)--net ...................... (324) 233 (702) (691)
------------ ------------ ------------ ------------
Income before income taxes, minority interest
and cumulative effect of change in accounting
principle ...................................... 3,021 6,038 5,203 9,767
Provision for income taxes ....................... 1,087 2,174 1,873 3,516
------------ ------------ ------------ ------------
Income before minority interest .................. 1,934 3,864 3,330 6,251
Minority interest ................................ - - - (53)
------------ ------------ ------------ ------------
Income before cumulative effect of
change in accounting principle ................. 1,934 3,864 3,330 6,198
Cumulative effect of change in accounting
principle (net of tax) ......................... - - (30,926) -
------------ ------------ ------------ ------------
Net income (loss) ................................ 1,934 3,864 (27,596) 6,198
Common stock dividends ........................... (1,168) (1,940) (2,335) (3,880)
Retained earnings, beginning of period ........... 112,475 143,353 143,172 142,959
------------ ------------ ------------ ------------
Retained earnings, end of period ................. $ 113,241 $ 145,277 $ 113,241 $ 145,277
============ ============ ============ ============
Net income per common share before cumulative
effect of change in accounting principle
Basic ........................................ $ .05 $ .10 $ .09 $ .16
============ ============ ============ ============
Diluted ...................................... $ .05 $ .10 $ .08 $ .16
============ ============ ============ ============
Cumulative effect of change in accounting
principle per common share
Basic ....................................... - - ($ .80) -
Diluted ..................................... - - ($ .79) -
Net income (loss) per common share
Basic ....................................... $ .05 $ .10 ($ .71) $ .16
Diluted ..................................... $ .05 $ .10 ($ .70) $ .16
Weighted average shares outstanding
Basic ........................................ 38,940,122 38,802,175 38,914,728 38,801,844
============ ============ ============ ============
Diluted ...................................... 39,364,405 39,138,005 39,270,537 39,048,672
============ ============ ============ ============
The accompanying notes are an integral part
of these financial statements.
3
CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except share data)
(Unaudited)
June 30, December 31,
2002 2001
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 5,110 $ 3,567
Receivables (net of allowance of $2,804 and $2,624) ................ 47,595 44,233
Revenue recognized in excess of billings on uncompleted
contracts ......................................................... 5,521 10,623
Inventories (net of allowance of $861 and $453) .................... 45,952 42,104
Other current assets ............................................... 4,899 4,008
---------- ----------
Total current assets ............................................ 109,077 104,535
Property, plant and equipment, net ................................... 144,628 143,661
Intangibles .......................................................... 3,366 3,491
Goodwill ............................................................. 19,394 70,124
Other assets ......................................................... 10,311 9,903
---------- ----------
Total assets .................................................... $ 286,776 $ 331,714
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt .................................................... $ - $ 8,762
Long-term debt due within one year ................................. 2,870 1,275
Accounts payable and accrued liabilities ........................... 21,737 24,976
Billings in excess of revenue recognized on uncompleted
contracts ......................................................... 2,535 2,370
Restructuring reserve .............................................. 1,060 1,480
Payroll and benefits payable ....................................... 6,474 6,989
Accrued income taxes ............................................... 3,409 1,890
---------- ----------
Total current liabilities ....................................... 38,085 47,742
Long-term debt ....................................................... 62,804 54,360
Deferred income taxes ................................................ 12,117 32,021
Other liabilities .................................................... 15,738 13,782
---------- ----------
Total liabilities ............................................... 128,744 147,905
---------- ----------
Commitments and contingencies ........................................ - -
---------- ----------
Shareholders' equity:
Common shares, $.01 par value, 100,000,000 shares
authorized, 41,750,116 and 41,643,492 shares issued ............. 418 416
Additional paid-in capital ......................................... 64,449 63,813
Retained earnings .................................................. 113,241 143,172
Accumulated other comprehensive income ............................. 7,053 3,538
---------- ----------
185,161 210,939
Treasury stock, at cost, 2,787,358 and 2,787,458 shares ............ (27,129) (27,130)
---------- ----------
Total shareholders' equity ...................................... 158,032 183,809
---------- ----------
Total liabilities and shareholders' equity ...................... $ 286,776 $ 331,714
========== ==========
The accompanying notes are an integral part
of these financial statements.
4
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended
June 30,
--------------------------
2002 2001
-------- ---------
Cash flows from operating activities
- ------------------------------------
Net income (loss) ......................................................... ($27,596) $ 6,198
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Cumulative effect of change in accounting principle ..................... 30,926 -
Depreciation and amortization ........................................... 9,243 9,974
Employee benefit plan provisions ........................................ 1,535 1,253
Changes in assets and liabilities - net of
effects from purchase of the minority interest in Calgon
Far East Co. Ltd. and exchange rate:
(Increase) in receivables .......................................... (1,698) (4,215)
(Increase) in inventories .......................................... (2,278) (4,475)
(Increase) decrease in other current assets ........................ 4,331 (2,996)
(Decrease) in restructuring reserve ................................ (517) (1,186)
Increase (decrease) in accounts payable and accruals ............... (3,102) 3,579
Increase (decrease) in long-term deferred income
taxes (net) ....................................................... (390) 1,090
Other items - net ....................................................... 533 352
---------- ---------
Net cash provided by operating activities ............................. 10,987 9,574
---------- ---------
Cash flows from investing activities
- ------------------------------------
Purchase of the minority interest in Calgon Far East Co. Ltd. ........... - (3,400)
Property, plant and equipment expenditures .............................. (7,815) (6,005)
Proceeds from disposals of equipment .................................... 660 215
---------- ---------
Net cash used in investing activities ................................. (7,155) (9,190)
---------- ---------
Cash flows from financing activities
- ------------------------------------
Net proceeds from borrowings ............................................ 1,278 4,790
Common stock dividends .................................................. (2,335) (3,880)
---------- ---------
Net cash (used in) provided by financing activities ................. (1,057) 910
---------- ---------
Effect of exchange rate changes on cash ................................... (1,232) (615)
---------- ---------
Increase in cash and cash equivalents ..................................... 1,543 679
Cash and cash equivalents, beginning
of period ............................................................... 3,567 4,334
---------- ---------
Cash and cash equivalents, end of period .................................. $ 5,110 $ 5,013
========== =========
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:
June 30, 2002 December 31, 2001
------------- -----------------
Raw materials $ 9,168 $ 7,575
Finished goods 36,784 34,529
-------- --------
$ 45,952 $ 42,104
======== ========
2. Supplemental Cash Flow Information:
Six Months Ended June 30,
---------------------------
2002 2001
----------- ---------
Cash (paid) received during the period for:
Interest $ (1,214) $ (2,122)
======== ========
Income taxes refunded - net $ 306 $ 1,417
======== ========
Bank debt:
Borrowings $ 48,520 $ 19,363
Repayments (47,242) (14,573)
-------- --------
Net proceeds from bank debt $ 1,278 $ 4,790
======== ========
3. Common stock dividends of $.03 per common share were declared during the
quarter ended June 30, 2002. Common stock dividends declared during the
quarter ended June 30, 2001 were $.05 per common share. Common stock
dividends in the amount of $.03 per common share were declared on July 29,
2002.
4. Comprehensive income:
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
2002 2001 2002 2001
-------- -------- ---------- ---------
Net income (loss) $ 1,934 $ 3,864 ($27,596) $ 6,198
Other comprehensive
income (loss) net of
tax provision (benefit) of
$190, ($577), $171 and
($1,630), respectively 4,189 (1,072) 3,515 (3,028)
-------- ------- --------- ---------
Comprehensive income (loss) $ 6,123 $ 2,792 ($ 24,081) $ 3,170
======== ======= ========= =========
The only matter contributing to the other comprehensive income (loss) was the
foreign currency translation adjustment.
6
5. Segment Information:
The Company has four reportable segments: Activated Carbon, Service,
Engineered Solutions and Consumer. These reportable segments are comprised
of strategic business units which offer different products and services.
The Company evaluates segment performance based primarily on economic
profit (as defined by the Company) and operating income.
The Activated Carbon segment manufactures granular activated carbon for use
in applications to remove organic compounds from liquids, gases, water and
air. The Service segment consists of reactivation of spent carbon and the
leasing, monitoring and maintenance of mobile carbon adsorption equipment.
The Engineered Solutions segment provides solutions to customers' air and
water process problems through the design, fabrication and operation of
systems that utilize the Company's enabling technologies: carbon
adsorption, ultraviolet light and advanced ion exchange separation. The
Consumer segment brings the Company's industrial purification technologies
directly to the consumer in the form of products and services including
charcoal products.
An improvement in the Company's information reporting system in the second
quarter of 2002 has allowed the Company to directly attribute, rather than
allocate, certain inventory cost variances, distribution costs and assets,
such as accounts receivable, to segments. As a result, the second quarter
and June year-to-date results for 2001 have been restated to conform with
the 2002 presentation.
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
2002 2001 2002 2001
---------- ---------- ----------- ----------
Net Sales
Activated Carbon $ 23,187 $ 27,593 $ 50,505 $ 56,841
Service 25,125 25,709 46,798 47,524
Engineered Solutions 10,639 14,350 19,835 25,729
Consumer 8,533 7,247 13,482 11,723
-------- --------- -------- ---------
$ 67,484 $ 74,899 $130,620 $141,817
======== ========= ======== ========
Income (loss) from operations
before depreciation and amortization
Activated Carbon $ 4,497 $ 4,924 $ 8,424 $ 10,082
Service 5,119 6,223 9,271 10,317
Engineered Solutions (1,392) 218 (1,706) 1,760
Consumer 277 364 199 314
-------- --------- -------- --------
8,501 11,729 $ 16,188 $ 22,473
Depreciation and amortization
Activated Carbon 2,290 2,380 4,766 4,859
Service 1,774 1,573 3,431 3,144
Engineered Solutions 196 738 402 1,424
Consumer 369 276 644 547
-------- --------- -------- --------
4,629 4,967 9,243 9,974
-------- --------- -------- --------
Income from operations after
depreciation and amortization $ 3,872 $ 6,762 $ 6,945 $ 12,499
======== ========= ======== ========
7
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ------------------------
2002 2001 2002 2001
--------- -------- --------- ---------
Reconciling items:
Interest income 147 25 258 50
Interest expense (674) (982) (1,298) (2,091)
Other income (expense) - net (324) 233 (702) (691)
--------- -------- --------- ---------
Consolidated income before
income taxes, minority interest and
cumulative effect of change in accounting
principle $ 3,021 $ 6,038 $ 5,203 $ 9,767
========= ======== ========= =========
June 30, 2002 December 31, 2001
------------- -----------------
Total Assets
Activated Carbon $130,179 $124,125
Service 89,434 89,202
Engineered Solutions 41,976 99,610
Consumer 25,187 18,777
--------- --------
$ 286,776 $331,714
========= ========
6. Derivative Instruments
The Company accounts for its derivative instruments under Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. This standard requires
recognition of all derivatives as either assets or liabilities at fair
value and 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. As of June 30, 2002, the Company held four
derivative instruments, three foreign exchange contracts and an interest
rate swap agreement. None of the four derivatives received hedge accounting
treatment under SFAS No. 133 and were marked to market through the
Company's earnings for the six months ended June 30, 2002.
7. Contingencies
On December 31, 1996, the Company purchased the common stock of Advanced
Separation Technologies Incorporated (AST) from Progress Capital Holdings,
Inc. and Potomac Capital Investment Corporation.
On January 12, 1998, the Company filed a claim for unspecified damages in
the United States District Court in the Western District of Pennsylvania
alleging among other things that Progress Capital Holdings and Potomac
Capital Investment Corporation materially breached various AST financial
and operational representations and warranties included in the Stock
Purchase Agreement. Based upon information obtained since the acquisition
and corroborated in the course of pre-trial discovery, the Company believes
that it has a reasonable basis for this claim and intends to vigorously
pursue reimbursement for damages sustained. Neither the Company nor its
counsel can predict with certainty the amount, if any, of recovery that
will be obtained from the defendants in this matter. Accordingly, the
Company has not recorded a receivable for this gain contingency pending
further developments in the litigation.
The Company is also currently a party in two cases involving alleged
infringement of its U.S. patent No. 6,129,893 ("893 patent") for the method
of preventing cryptosporidium infection in drinking water. In the first
case, Wedeco Ideal Horizons, Inc. (Wedeco) has filed suit against the
Company seeking a declaratory judgment that it does not infringe the
Company's "893 patent". This matter is currently pending in the United
States District Court for the District of New Jersey. In the second case,
the Company has pending
8
litigation against the Town of Ontario, NY and Robert Wykle, et al. in the
United States District Court for the Western District of New York alleging
that the defendant is practicing the method claimed within the "893 patent"
without a license. Neither the Company nor its counsel can predict with any
certainty the outcome of the two matters.
The Company is involved in various legal proceedings, lawsuits, and claims,
including employment, product warranty, and environmental matters of a
nature considered normal to its business. It is the Company's policy to
accrue for amounts related to these legal matters if it is probable that a
liability has been incurred and an amount is reasonably estimable.
Management believes, after consulting with counsel, that the ultimate
liabilities, if any, resulting from such lawsuits and claims will not
materially affect the consolidated results, liquidity or financial position
of the Company.
8. Goodwill & Intangible Assets
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 142, "Goodwill and Other Intangible Assets." This standard requires
that goodwill and intangible assets with indefinite useful lives should not
be amortized but should be tested for impairment at least annually. This
new standard also prescribes guidelines for new disclosure requirements.
The Company has adopted SFAS No. 142 as of January 1, 2002, as required.
In accordance with SFAS No. 142, the Company assessed the useful lives of
its intangible assets during the first quarter of 2002 and concluded that
it holds no indefinite lived intangibles. As a result, no impairment test
was required and no transition adjustment was recorded for indefinite lived
intangibles.
As required by SFAS No. 142, management has allocated goodwill to its
reporting units. During the three months ended June 30, 2002, management
completed the initial goodwill impairment test required as of January 1,
2002 for each of its reporting units. The initial goodwill impairment test
included determining the fair value of each reporting unit that is
allocated goodwill and comparing that fair value to the reporting unit's
carrying value. The Company, in its initial goodwill impairment test,
identified one reporting unit whose carrying value exceeded its estimated
fair value.
The Company engaged an independent valuation specialist to estimate the
fair value of this reporting unit. The report of the independent valuation
specialist used a combination of methods to determine the fair value of the
reporting unit including prices of comparable businesses, a present value
technique and a technique using recent transactions involving businesses
similar to the reporting unit. The reporting unit consists primarily of the
Company's AST subsidiary that is included in the Company's Engineered
Solutions Segment.
As a result of the reporting unit's excess carrying value, the Company was
required, for this reporting unit, to assign the estimated fair value to
the reporting unit's identifiable assets (including those intangible assets
not recorded on the reporting unit's balance sheet) and liabilities to
determine the implied fair value of the reporting unit's goodwill and the
amount of impairment loss as of the date of implementation, January 1,
2002. The Company recorded a cumulative effect of change in accounting
principle of $30.9 million (net of the tax effect of $20.1 million) at
January 1, 2002 for its implementation of SFAS No. 142.
The effect of adopting this change in accounting principle effective for
the first quarter of 2002 reduced previously reported net income for the
quarter ended March 31, 2002 by $30.9 million to a net loss of $29.6
million, basic net income per share by $0.80 to a basic net loss per share
of $0.76, and diluted net income per share by $0.79 to a diluted net loss
per share of $0.75.
9
The following is the categorization of the Company's intangible assets as
of June 30, 2002 and December 31, 2001, respectively:
June 30, 2002 December 31, 2001
----------------------------- ----------------------------
Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ------------- -------------- ------------
Amortized Intangible Assets:
Patents $ 1,319 $ (385) $ 1,319 $ (344)
Unpatented Technology 2,875 (443) 2,875 (359)
----------- ----------- ----------- ---------
Total $ 4,194 $ (828) $ 4,194 $ (703)
=========== =========== =========== =========
For the three and six month periods ended June 30, 2002 the Company
recognized $57 and $125 thousand, respectively, of amortization expense.
The Company estimates amortization expense to be recognized during the next
five years as follows:
For the year ended 12/31/02 $ 248
For the year ended 12/31/03 $ 246
For the year ended 12/31/04 $ 246
For the year ended 12/31/05 $ 246
For the year ended 12/31/06 $ 246
The changes in the carrying amounts of goodwill by segment for the six
months ended June 30, 2002 are as follows:
Activated Engineered
Carbon Service Solutions Consumer
Segment Segment Segment Segment Total
------- ------- ------- ------- -----
Balance as of January 1, 2002 $ 2,015 $ - $ 68,049 $ 60 $ 70,124
Cumulative effect of change
in accounting principle - - (51,000) - (51,000)
Foreign exchange - - 270 - 270
-------- ------- -------- ------- --------
Balance as of June 30, 2002 $ 2,015 $ - $ 17,319 $ 60 $ 19,394
======== ======= ======== ======= ========
10
The following is the Company's net income adjusted to exclude goodwill
amortization expense (net of tax) for the three months and six months ended June
30, 2002 and 2001, respectively.
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
NET INCOME:
Reported net income (loss) $ 1,934 $ 3,864 $(27,596) $ 6,198
Add back goodwill amortization, net of tax - 322 - 639
-------- -------- -------- --------
Adjusted net income (loss) $ 1,934 $ 4,186 $(27,596) $ 6,837
======== ======== ======== ========
BASIC EARNINGS PER SHARE:
Reported net income (loss) $ 0.05 $ 0.10 $ (.71) $ .16
Goodwill amortization, net of tax - 0.01 - .02
-------- -------- -------- --------
Adjusted net income (loss) $ 0.05 $ 0.11 $ (.71) $ .18
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
Reported net income (loss) $ 0.05 $ 0.10 $ (.70) $ .16
Goodwill amortization, net of tax - 0.01 - .02
-------- -------- -------- --------
Adjusted net income (loss) $ 0.05 $ 0.11 $ (.70) $ .18
======== ======== ======== ========
9. New Accounting Pronouncements
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. Management has not yet evaluated
the impact of the adoption of SFAS No. 143 on the Company's financial
statements. The Company plans to adopt SFAS No. 143 on January 1, 2003 as
required.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" which addresses financial
accounting and reporting for the impairment or disposal of long-lived
assets. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years. The Company has adopted SFAS No. 144 as of January 1,
2002 as required with no resulting impact on the Company's financial
statements.
In July 2002, the FASB has issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities
when they are incurred rather than at the date of a commitment to an exit
or disposal plan. Examples of costs covered by the standard include lease
termination costs and certain employee severance costs that are associated
with a restructuring, discontinued operation, plant closing, or other exit
or disposal activity. Previous accounting guidance, amended by SFAS No.
146, was provided by EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to
be applied prospectively to exit or disposal activities initiated after
December 31, 2002.
11
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 decreased by $7.4 million or 9.9% and $11.2
million or 7.9% for the quarter and year-to-date periods ended June 30, 2002
respectively, versus the quarter and year-to-date periods ended June 30, 2001
(an analysis of sales by segment can be found in Note 5 of Selected Notes to
Financial Statements). Net sales for the activated carbon segment decreased by
$4.4 million or 16.0% versus the quarter ended June 30, 2001 and $6.3 million or
11.1% versus the year-to-date period ended June 30, 2001. The decline was
primarily the result of lower sales volume in all geographic markets. Net sales
for the service segment for the quarter and year-to-date periods ended June 30,
2002 were consistent with the similar 2001 periods. Revenues associated with the
engineered solutions segment decreased by $3.7 million or 25.9% for the quarter
ended June 30, 2002 versus the quarter ended June 30, 2001 and $5.9 million or
22.9% for the year-to-date period ended June 30, 2002 versus the comparable 2001
period primarily due to lower revenues in 2002 associated with a major project
secured in 2001 that is now nearing completion. Sales to the consumer segment
for the quarter ended June 30, 2002 increased by $1.3 million or 17.7% compared
to the quarter ended June 30, 2001 and $1.8 million or 15.0% for the
year-to-date period ended June 30, 2002 versus the similar 2001 period. The
reasons for the increase during both periods of comparison were due to higher
sales of charcoal, carbon cloth and the Company's new consumer products. The
total positive impact of foreign currency translation on consolidated net sales
for the quarter ended June 30, 2002 was $1.0 million. The total adverse impact
of foreign currency translation on consolidated net sales for the year-to-date
period ended June 30, 2002 was $0.3 million.
Gross profit, before depreciation, as a percentage of net sales was 31.3% for
the quarter ended June 30, 2002 compared to 33.5% for the similar 2001 period, a
2.2 percentage point decline. For the year-to-date period, gross profit, before
depreciation, as a percentage of net sales was 31.2% in 2002 versus 34.3% in the
2001 period representing a 3.1 percentage point decline. The decline for the
quarter was primarily due to a combination of costs associated with the start-up
of a major Engineered Solutions project partially offset by lower costs of raw
materials in 2002 versus the comparable 2001 period. In addition to the
aforementioned reasons, the year-to-date decline was also affected by production
inefficiencies resulting in higher product costs and competitive pricing in
certain of the Company's Activated Carbon and Service segments.
The depreciation and amortization decreases of $0.3 million and $0.7 million
during the quarter and year-to-date periods ended June 30, 2002 versus the
quarter and year-to-date periods ended June 30, 2001 were related primarily to
the Company ceasing to amortize goodwill due to the implementation of Statement
of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
as of January 1, 2002.
Combined, selling, general and administrative expenses and research and
development expenses for the quarter and year-to-date periods ended June 30,
2002 were below the comparable 2001 quarter and year-to-date periods by $0.8
million or 6.0% and $1.7 million or 6.3%, respectively. The decrease during both
periods represents the Company's commitment to manage controllable costs such as
travel and professional services during periods of lower sales demand.
Other expense for the quarter ended June 30, 2002 increased by $0.6 million, a
greater than two-fold increase as compared to June 30, 2001 due to a June 2001
gain resulting from marking derivative instruments to market and a change in
estimate of certain non-income related taxes in 2001. Year-to-date, other
expense is comparable for the 2002 and 2001 periods.
Interest expense, net of interest income, for the quarter and year-to-date
periods ended June 30, 2002 was below the quarter and year-to-date periods ended
June 30, 2001 by $0.4 million or 44.9% and $1.0 million or 49%, respectively.
The decrease in interest expense for both periods was primarily the result of
the combination of lower interest rates and a lower average level of borrowings
during the comparable periods.
12
Net income decreased by $1.9 million and $33.8 million for the quarter and
year-to-date periods ended June 30, 2002 versus the quarter and year-to-date
periods ended June 30, 2001 primarily for the reasons discussed above and, for
the year-to-date period, as a result of the $30.9 million after tax effect of
the cumulative effect of change in accounting principle related to the
implementation of Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (see note 8 to the Selected Noted to Financial
Statements.)
Financial Condition
Working Capital and Liquidity
Cash flows generated from operating activities were $11.0 million for
the six month period ended June 30, 2002 versus cash generated from operations
of $9.6 million for the comparable 2001 period. The $1.4 million increase
represents a decrease in operating working capital (exclusive of debt) in 2002
versus the comparable period in 2001 partially offset by lower earnings and
depreciation and amortization in 2002.
Common stock dividends paid during the quarter ended June 30, 2002 represented
$.03 per common share versus dividends paid of $.05 per common share for the
quarter ended June 30, 2001.
Total debt at June 30, 2002 was $65.7 million, an increase of $1.3 million from
December 31, 2001. The additional borrowings were used primarily to fund capital
expenditures.
The Company expects that current cash from operating activities plus cash
balances and available external financing will be sufficient to meet its
requirements.
The Company has a $113.4 million credit facility consisting of an $86.8 million
five-year revolving credit facility expiring in May 2004 and a $26.6 million
364-day revolving credit facility expiring in May 2004. The commitment under the
364-day revolving credit facility expired in May 2002 and was not renewed.
However, in order to preserve the full $113.4 million commitment of the credit
facility, the Company exercised its contractual option of borrowing the total
commitment of $26.6 million under the 364-day line before its May 2002
expiration. The $26.6 million of outstanding borrowings mature in May 2004 which
coincides with the expiration of the long-term portion of the credit facility.
Included in this facility is a letter of credit subfacility which may not exceed
$30.0 million. At June 30, 2002 there were $26.6 million of borrowings under the
364-day revolving credit agreement. The weighted average interest rate on the
outstanding balance under this credit facility was 2.75% at June 30, 2002.
In January 2001, the Company entered into an interest rate swap that fixes $10.0
million of its outstanding variable rate U.S. credit facility at 5.48%. The
arrangement expires in January 2003.
Restructuring of Operations
The Company currently has two separate restructuring plans requiring
continued cash outlays as of the period ended June 30, 2002. The latter of the
two initiatives was undertaken during the fourth quarter of 1999 while the
former commenced in the third quarter of 1998. The details of both restructuring
plans are outlined below.
During the fourth quarter of 1999, the Company adopted a strategy aimed at
lowering costs to serve the activated carbon markets, investing to grow its
service and solutions businesses and repositioning its proven technologies to
bring more value to consumers. In order to achieve these goals, the Company has
been reorganized as a globally integrated business with emphasis on providing
services and solutions to customer problems. The implementation began in
December 1999 and is essentially complete except for contractual cash outlays
for employee severance payments to be made in 2002 and other contractual cash
outlays, primarily lease obligations, through the second quarter of 2006.
In the third quarter of 1998, the Company initiated a worldwide plan to reduce
costs and realign the organization structure. The implementation began in
September 1998 and is essentially completed with the exception of some minor
contractual cash outlays that will continue through 2002.
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The restructuring reserve activity for the six months ended June 30, 2002 was:
Balance Balance
1-1-02 Payments 6-30-02
--------- -------- -------
($000)
1999 Plan
- ---------
Employee severance and
termination benefit costs $ 247 $ (223) $ 24
Other costs 1,101 (89) 1,012
--------- -------- -------
1,348 (312) 1,036
--------- -------- -------
1998 Plan
- ---------
Employee severance and
termination benefit costs 95 (95) -
Other costs 37 (13) 24
--------- -------- -------
132 (108) 24
--------- -------- -------
Total reserves $ 1,480 $ (420) $ 1,060
========= ======== =======
Management believes the reserve balances are adequate.
Capital Expenditures and Investments
Capital expenditures for property, plant and equipment totaled $7.8
million for the year-to-date period ended June 30, 2002 compared to expenditures
of $6.0 million for the same period in 2001. The increase is primarily the
result of the Company's continuing investment in the construction of a carbon
facility in the People's Republic of China. Capital expenditures for 2002 are
projected to be approximately $20.0 million which includes the establishment of
a new Center of Excellence in the Gulf Coast region of the United States in
addition to the construction of the aforementioned carbon facility.
New Accounting Pronouncements
The FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. Management has not yet evaluated the impact of the
adoption of SFAS No. 143 on the Company's financial statements. The Company
plans to adopt SFAS No. 143 on January 1, 2003 as required.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The Company
has adopted SFAS No. 144 as of January 1, 2002 as required with no resulting
impact on the Company's financial statements.
In July 2002, the FASB has issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. Previous
accounting guidance, amended by SFAS No. 146, was provided by EITF Issue No.
94-3, "Liability
14
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is
to be applied prospectively to exit or disposal activities initiated after
December 31, 2002.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note 7 to the unaudited interim Consolidated Financial Statements
contained herein.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held April 23, 2002. In
connection with the meeting, proxies were solicited pursuant to the
Securities Exchange Act. The following are the voting results on the
proposal considered and voted upon at the meeting and described in the
proxy statement.
Election of directors:
Votes For Votes Withheld
Class of 2005
Seth E. Schofield 31,265,063 1,252,785
John P. Surma 31,264,421 1,253,427
Item 6. Exhibits and Reports on Form 8-K
(c) Exhibits
Exhibit 99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(d) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended June 30,
2002.
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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: August 9, 2002 /s/ William E. Cann
------------------------------
William E. Cann
Senior Vice President,
Chief Financial Officer
17