<PAGE>
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 30,1997 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
------------------------------------------------------------------------
(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
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(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, 1997
- ----------------------------- -------------------------------
Common Stock, $.01 par value 39,742,660 shares
<PAGE>
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
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
during the past 12 months.
I N D E X
---------
PART 1 - FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
- -------
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
------ -----------------------------------------------
of Operations and Financial Condition............... 8
-------------------------------------
PART II - OTHER INFORMATION
- ------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders.. 11
------ ---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K .................... 11
------ --------------------------------
SIGNATURES ...................................................... 12
- ----------
- 1 -
<PAGE>
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, 1996.
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 September 30, 1997 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.
- 2 -
<PAGE>
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales........................ $ 78,382 $ 69,451 $247,077 $213,385
-------- -------- -------- --------
Cost of products sold
(excluding depreciation)....... 47,764 43,212 151,463 133,635
Depreciation and amortization.... 5,169 4,883 15,884 14,484
Selling, general and
administrative expenses........ 13,555 12,732 41,386 36,649
Research and development
expenses....................... 2,203 1,651 6,154 4,775
-------- -------- -------- --------
68,691 62,478 214,887 189,543
-------- -------- -------- --------
Income from operations........... 9,691 6,973 32,190 23,842
Interest income.................. 96 526 266 1,172
Interest expense................. (1,053) (222) (2,939) (550)
Other income (expense)--net...... (632) (340) (1,042) (413)
-------- -------- -------- --------
Income before income taxes and
minority interest............. 8,102 6,937 28,475 24,051
Provision for income taxes....... 2,760 2,531 10,451 8,778
-------- -------- -------- --------
Income before minority interest.. 5,342 4,406 18,024 15,273
Minority interest................ 96 - 96 -
-------- -------- -------- --------
Net income....................... 5,438 4,406 18,120 15,273
Common stock dividends........... (3,175) (3,234) (9,523) (9,701)
Retained earnings, beginning
of period...................... 168,432 157,735 162,098 153,335
-------- -------- -------- --------
Retained earnings, end of
period......................... $170,695 $158,907 $170,695 $158,907
======== ======== ======== ========
Net income per common share...... $ .14 $ .11 $ .46 $ .38
======== ======== ======== ========
Weighted average shares
outstanding.....................39,690,290 40,417,022 39,680,872 40,418,243
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 3 -
<PAGE>
CALGON CARBON CORPORATION
CONSOLIDATED BALANCE SHEET
--------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 10,269 $ 15,439
Receivables................................. 67,956 63,762
Inventories................................. 49,750 46,471
Other current assets........................ 14,348 9,247
-------- --------
Total current assets..................... 142,323 134,919
Property, plant and equipment, net............ 186,856 173,564
Intangibles................................... 74,928 72,658
Other assets.................................. 11,129 16,110
-------- --------
Total assets............................. $415,236 $397,251
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year.......... $ 7,185 $ 4,451
Accounts payable and accrued liabilities.... 39,791 35,846
Restructuring reserve....................... 6,629 7,847
Payroll and benefits payable................ 14,560 12,903
Accrued income taxes........................ 4,892 5,202
-------- --------
Total current liabilities................ 73,057 66,249
Long-term debt................................ 73,051 65,837
Deferred income taxes......................... 39,387 40,522
Other liabilities............................. 6,257 7,748
-------- --------
Total liabilities........................ 191,752 180,356
-------- --------
Minority Interest............................. 1,514 -
-------- --------
Shareholders' equity:
Common shares, $.01 par value, 100,000,000
shares authorized, 41,483,960 and
41,435,960 shares issued.................. 415 414
Additional paid-in capital.................. 62,640 62,102
Retained earnings........................... 170,695 162,098
Cumulative translation adjustments.......... 8,286 12,347
-------- --------
242,036 236,961
Treasury stock, at cost, 1,761,300 shares... (20,066) (20,066)
-------- --------
Total shareholders' equity............... 221,970 216,895
-------- --------
Total liabilities and
shareholders' equity................... $415,236 $397,251
======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 4 -
<PAGE>
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities
------------------------------------
Net income..................................... $ 18,120 $ 15,273
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................ 15,884 14,643
Employee benefit plan provisions............. 350 396
Changes in assets and liabilities - net of
effects from purchase of businesses and
exchange:
Decrease in receivables.................. 1,263 5,887
(Increase) decrease in inventories....... (4,726) 6,999
(Increase) in other current assets....... (4,974) (3,967)
(Decrease) in restructuring reserve...... (276) (2,588)
Increase (decrease) in accounts payable
and accruals........................... 1,616 (9,507)
Increase in long-term deferred
income taxes (net)..................... 3,576 5,038
Other items--net............................. (891) (1,262)
-------- --------
Net cash provided by
operating activities................... 29,942 30,912
-------- --------
Cash flows from investing activities
-------------------------------------
Purchase of businesses....................... (1,113) (18,594)
Property, plant and equipment expenditures... (27,203) (9,518)
Proceeds from disposals of equipment......... 368 273
-------- --------
Net cash (used in) investing activities.... (27,948) (27,839)
-------- --------
Cash flows from financing activities
------------------------------------
Net proceeds from borrowings................. 2,618 2,441
Treasury stock purchases..................... - (812)
Common stock dividends....................... (9,522) (9,498)
Other........................................ 539 116
-------- --------
Net cash (used in) financing activities... (6,365) (7,753)
-------- --------
Effect of exchange rate changes on cash........ (799) (442)
-------- --------
(Decrease) in cash and cash equivalents........ (5,170) (5,122)
Cash and cash equivalents, beginning
of period.................................... 15,439 40,089
-------- --------
Cash and cash equivalents, end of period....... $ 10,269 $ 34,967
======== ========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
- 5 -
<PAGE>
CALGON CARBON CORPORATION
SELECTED NOTES TO FINANCIAL STATEMENTS
--------------------------------------
(Dollars in Thousands)
(Unaudited)
1. Inventories:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $12,333 $ 16,122
Finished goods 37,417 30,349
------- --------
$49,750 $ 46,471
======= ========
</TABLE>
2. Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1997 1996
-------- ---------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,688 $ 565
Income taxes, net of refunds $ 7,841 $ 7,167
======= ========
Bank debt:
Borrowings $10,568 $ 20,971
Repayments (7,950) (18,530)
------- --------
Net proceeds from borrowings $ 2,618 $ 2,441
======= ========
</TABLE>
3. Common stock dividends declared during both quarters ended September 30, 1997
and 1996 were $.08 per common share.
- 6 -
<PAGE>
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 September 30, 1997 and the related consolidated
statements of income and retained earnings and of cash flows for the three-month
and nine-month periods ended September 30, 1997 and 1996. 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, 1996, 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,
1997, except as to Note 7, which is as of March 3, 1997, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the accompanying consolidated balance sheet information as of December 31, 1996
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
November 12, 1997
- 7 -
<PAGE>
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 increased by $8.9 million or 12.9% for the three
months ended September 30, 1997 and increased by $33.7 million or 15.8% for the
nine months ended September 30, 1997 versus the comparable 1996 periods. Net
sales to the industrial process markets of $38.9 million and $122.6 million for
the three and nine months ended September 30, 1997 increased by $6.1 million or
18.5% and $21.9 million or 21.7% compared to the three and nine months ended
September 30, 1996. The increase for both periods was related to improved
results for the food, chemical-pharmaceutical and original equipment
manufacturers areas. The improvements in the food and chemical-pharmaceutical
areas were associated with the Company's Advanced Separation Technologies
business, which was acquired at the end of 1996, while the increases within the
original equipment manufacturers area resulted from improvements in the United
States home water filter and personnel protection businesses. Net sales to the
environmental markets for the three and nine months ended September 30, 1997
were $35.3 million and $107.7 million, respectively, and represented increases
of $2.9 million or 8.8% and $12.3 million or 12.9% over comparable 1996 periods.
The increase for the three-month period was due to strong worldwide municipal
activity in the carbon and service areas. Additionally, the increase for the
nine-month period reflects sales gains by the Advanced Oxidation group, another
1996 acquisition, partially offset by lower initial fills in the United States
municipal category. The consumer area reported sales of $4.2 million for the
quarter ended September 30, 1997 and $16.7 million for the nine months then
ended. The results for the quarter were virtually unchanged versus the third
quarter of 1996, while sales for the nine months ended September 30, 1997 were
below the comparable 1996 period by $.4 million 2.6%. Overall, the net sales
increase for the three-month period ended September 30, 1997 was primarily
related to businesses acquired during 1996, partially offset by foreign currency
translation declines due to the strengthening of the U.S. dollar relative to the
European currencies in the amount of $3.0 million, while the increase for the
nine months ended September 30, 1997 also included improvements in the European
municipal category. The negative effect related to foreign currency translation
for the year-to-date period totaled $6.9 million.
Gross profit, before depreciation, as a percentage of net sales, for the three
and nine months ended September 30, 1997 were 39.1% and 38.7%, respectively,
versus 37.8% and 37.4% in the comparable 1996 periods. The improvements were
the result of sales increases for higher margin products and reduced natural gas
costs, partially offset by lower margin equipment sales by the Company's
recently acquired businesses.
Depreciation and amortization for the three and nine months ended September 30,
1997 increased by $.3 million and $1.4 million, respectively, due to
amortization of intangibles (primarily goodwill) associated with the Company's
1996 acquisitions.
- 8 -
<PAGE>
Selling, general and administrative and research and development expenses for
the three-month period ended September 30, 1997 increased by $1.4 million versus
the comparable 1996 period and by $6.1 million for the nine-month period then
ended primarily because of costs associated with the acquired businesses.
During the quarter and nine-month period ended September 30, 1997, interest
income decreased and interest expense increased versus the comparable 1996
periods, and resulted in a net additional interest cost for the quarter of $1.3
million and $3.3 million for the nine-month period. These changes were related
to the Company's 1996 acquisition program which reduced invested cash and
increased long-term debt by $60 million.
The effective income tax rates for the three-month and nine-month periods ended
September 30, 1997 were 34.1% and 36.7%, respectively. These compare to 36.5%
for the three and nine months ended September 30, 1996. The decrease for the
quarter resulted primarily from differences between the 1996 tax return, as
filed, versus the 1996 year-end income tax provision.
Financial Condition
- -------------------
Working Capital and Liquidity
-----------------------------
Net cash provided by operating activities was $29.9 million for the nine
months ended September 30, 1997, a decrease of $1.0 million from the prior year,
primarily reflecting increased working capital investment offset by improvement
in net income.
Total debt as of September 30, 1997 was $80.2 million, an increase of $9.9
million from December 31, 1996, primarily reflecting the addition of $5.8
million debt acquired through the newly consolidated Calgon Far East Co., Ltd.,
effective July 1, 1997, and $3.0 million of industrial revenue bond financing.
The Company expects that cash from operating activities plus cash balances and
available external financings will be sufficient to fund its operating, dividend
and capital requirements.
Restructuring of Operations
- ---------------------------
During 1997, the Company expects to continue the restructuring plan begun
in the fourth quarter of 1994. The restructuring reserve at September 30, 1997
of $6.6 million relates principally to the estimated costs for the demolition of
the Brilon-Wald, Germany plant. The Company has been approached by potential
purchasers of the facility, however, at this time a suitable buyer has not been
identified. Evaluations of demolition, disposition, site protection and
environmental costs continue and the existing reserves are believed to be
adequate.
On October 15, 1997, the Company announced that it is consolidating the
manufacturing operations and research activities of its Advanced
- 9 -
<PAGE>
Oxidation Technologies (AOT) unit at its Markham, Ontario, Canada site. The
company will close its Tucson, Arizona facility by year-end. The closure will
result in a one-time restructuring charge of $1.5 million, that will be
reflected in the financial statements for the fourth quarter of 1997, but will
produce an estimated annual savings of $.7 million beginning in 1998.
Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment were $27.2 million
for the nine months ended September 30, 1997 compared to expenditures of $9.5
million for the same period in 1996. The major 1997 expenditures were for
capacity expansion and cost reduction projects at the Big Sandy, Kentucky plant
($16.9 million), the Pearl River, Mississippi plant ($2.7 million) and at the
Feluy, Belgium plant ($2.1 million). Capital expenditures for the year 1997 are
projected to be approximately $40 million.
The 1997 purchase of businesses amount of $1.1 million includes an increase to
the purchase price for Advanced Separation Technologies Incorporated (a 1996
acquisition) of $.5 million and a net expenditure of $.6 million which increased
the Company's ownership percentage in Calgon Far East Co., Ltd., it's Japanese
joint venture. The increased purchase price for Advanced Separation
Technologies Incorporated was due to a higher level of "Adjusted Closing Net
Current Assets" than stated in the purchase agreement. The purchase of business
amount related to Calgon Far East Co., Ltd. was effective July 1, 1997 and
increased the Company's ownership of that entity from 50% to 60% giving it a
controlling interest. Cash expended for this increase in control was $1.1
million and was partially offset by cash on this entity's July 1, 1997 balance
sheet of $.5 million resulting in a net purchase of business amount of $.6
million.
Prior to the Calgon Far East Co., Ltd. ownership change, the balance sheet and
income statement of this entity were included in the Company's financial
statements under the equity method of accounting. Now, the financial statements
are consolidated into the Company's financial statements recognizing minority
interest on both the balance sheet and income statement.
The 1996 purchase of businesses amount of $18.6 million was related to the
acquisitions of the perox-pureTM operations of Vulcan Peroxidation Systems, Inc.
and Solarchem Enterprises Inc. of Markham, Ontario. For additional information
associated with these acquisitions, please refer to the Company's consolidated
financial statements and notes included therein (specifically Number 2) for the
year ended December 31, 1996.
New Accounting Pronouncements
- -----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." SFAS
No. 128 establishes new standards for computing and presenting earnings per
share. The Company is required to adopt the provisions of SFAS No. 128 for
its consolidated financial statements for the year ended December 31, 1997 and
subsequent interim periods. Upon adoption, the standard also requires the
restatement of all prior period earnings per share information presented. The
adoption of SFAS No. 128 is not expected to have a material effect on the
Company's earnings per share computations or disclosures.
- 10 -
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
15 Letter from Price Waterhouse LLP regarding
unaudited interim financial information.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
September 30, 1997.
- 11 -
<PAGE>
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, 1997 By /s/Colin Bailey
-----------------------------
Colin Bailey
President and Chief
Executive Officer
- 12 -
<PAGE>
Exhibit No. 15
November 12, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We are aware that Calgon Carbon Corporation has included our report dated
November 12, 1997 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectuses constituting part of its Registration
Statements on Forms S-8 (No. 33-34019 and No. 333-01019). We are also aware of
our responsibilities under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 10,269
<SECURITIES> 0
<RECEIVABLES> 67,956
<ALLOWANCES> 0
<INVENTORY> 49,750
<CURRENT-ASSETS> 142,323
<PP&E> 335,282
<DEPRECIATION> 148,426
<TOTAL-ASSETS> 415,236
<CURRENT-LIABILITIES> 73,057
<BONDS> 0
0
0
<COMMON> 42,989
<OTHER-SE> 178,981
<TOTAL-LIABILITY-AND-EQUITY> 415,236
<SALES> 247,077
<TOTAL-REVENUES> 247,077
<CGS> 151,463
<TOTAL-COSTS> 214,887
<OTHER-EXPENSES> 1,042
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,939
<INCOME-PRETAX> 28,475
<INCOME-TAX> 10,451
<INCOME-CONTINUING> 18,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,120
<EPS-PRIMARY> .46
<EPS-DILUTED> .46
</TABLE>
