<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 June 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
------------------------------------------------------
(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 July 30, 1999
- ----------------------------- ----------------------------
Common Stock, $.01 par value 38,802,132 shares
<PAGE>
CALGON CARBON CORPORATION
SEC FORM 10-Q
QUARTER ENDED June 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 future 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
---------
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
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........................................ 15
-------
Item 6. Exhibits and Reports on Form 8-K .............. 15
------ --------------------------------
SIGNATURES .................................................... 16
- ----------
-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, 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-
<PAGE>
CALGON CARBON CORPORATION
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $ 80,215 $ 85,713 $152,007 $155,221
-------- -------- -------- --------
Cost of products sold
(excluding depreciation)............................ 51,869 53,687 97,551 94,662
Depreciation and amortization......................... 5,873 5,411 11,854 10,861
Selling, general and
administrative expenses............................. 14,768 14,546 27,519 28,337
Research and development
expenses............................................ 2,020 2,169 3,887 4,136
-------- -------- -------- --------
74,530 75,813 140,811 137,996
-------- -------- -------- --------
Income from operations................................ 5,685 9,900 11,196 17,225
Interest income....................................... 22 53 34 87
Interest expense...................................... (1,245) (1,271) (2,379) (2,446)
Other income (expense)--net........................... (319) (389) (668) (820)
-------- -------- -------- --------
Income before income taxes
and minority interest............................... 4,143 8,293 8,183 14,046
Provision for income
taxes............................................... 1,498 3,070 2,953 5,222
-------- -------- -------- --------
Income before minority
interest............................................ 2,645 5,223 5,230 8,824
Minority interest..................................... 47 (6) 56 (38)
-------- -------- -------- --------
Net income............................................ 2,692 5,217 5,286 8,786
Common stock dividends................................ (3,104) (3,180) (6,202) (6,359)
Retained earnings, beginning
of period........................................... 163,407 168,665 163,911 168,275
-------- -------- -------- --------
Retained earnings, end of
period.............................................. $162,995 $170,702 $162,995 $170,702
======== ======== ======== ========
Net income per common share
(basic and diluted)................................. $ .07 $.13 $.14 $.22
========== ========= ========== ==========
Weighted average shares
outstanding......................................... 38,784,415 39,742,660 38,755,432 39,742,660
========== ========== ========== ==========
</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>
June 30, December 31,
1999 1998
----------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 5,455 $ 1,325
Receivables..................................... 60,026 56,463
Inventories..................................... 56,445 57,816
Other current assets............................ 15,832 14,236
-------- --------
Total current assets......................... 137,758 129,840
Property, plant and equipment, net................ 179,041 189,250
Intangibles....................................... 77,578 78,342
Other assets...................................... 8,479 9,562
-------- --------
Total assets................................. $402,856 $406,994
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt due within one year.............. $ 29,262 $ 22,131
Accounts payable and accrued liabilities........ 30,447 33,704
Restructuring reserve........................... 2,663 4,909
Payroll and benefits payable.................... 9,887 10,141
Accrued income taxes............................ 3,016 933
-------- --------
Total current liabilities.................... 75,275 71,818
Long-term debt.................................... 70,834 71,101
Deferred income taxes............................. 39,624 42,641
Other liabilities................................. 10,099 9,826
-------- --------
Total liabilities............................ 195,832 195,386
-------- --------
Minority interest................................. 1,414 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............................... 162,995 163,911
Accumulated other comprehensive income.......... 5,943 9,778
-------- --------
232,725 236,972
Treasury stock, at cost, 2,780,500 and
2,761,500 shares.............................. (27,115) (26,986)
-------- --------
Total shareholders' equity................... 205,610 209,986
-------- --------
Total liabilities and
shareholders' equity....................... $402,856 $406,994
======== ========
</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>
Six Months Ended
June 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income..................................... $ 5,286 $ 8,786
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization................ 11,854 10,861
Employee benefit plan provisions............. 246 206
Changes in assets and liabilities - net of
effects from purchase of businesses and
exchange:
(Increase) decrease in receivables....... (5,723) 5,504
(Increase) in inventories................ (639) (6,781)
(Increase) decrease in other current
assets................................. (1,728) 3,045
(Decrease) in restructuring reserve...... (2,238) (96)
Increase (decrease) in accounts payable
and accruals........................... 1,006 (10,940)
Increase in long-term deferred
income taxes (net)..................... 648 3,152
Other items--net............................. 477 (422)
------- --------
Net cash provided by
operating activities................... 9,189 13,315
------- --------
Cash flows from investing activities
- ------------------------------------
Purchase of businesses....................... (725) (2,308)
Property, plant and equipment expenditures... (5,138) (10,535)
Proceeds from disposals of equipment......... 431 273
------- --------
Net cash (used in) investing activities.... (5,432) (12,570)
------- --------
Cash flows from financing activities
- ------------------------------------
Net proceeds from borrowings................. 7,351 7,687
Treasury stock purchases..................... (129) -
Common stock dividends....................... (6,202) (6,359)
------- --------
Net cash provided by financing
activities............................. 1,020 1,328
------- --------
Effect of exchange rate changes on cash........ (647) 52
------- --------
Increase in cash and cash equivalents.......... 4,130 2,125
Cash and cash equivalents, beginning
of period.................................... 1,325 7,982
------- --------
Cash and cash equivalents, end of period....... $ 5,455 $ 10,107
======= ========
</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>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $12,134 $12,943
Finished goods 44,311 44,873
------- -------
$56,445 $57,816
======= =======
</TABLE>
2. Supplemental Cash Flow Information:
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,616 $ 2,443
Income taxes, net of refunds $ 671 $ 5,091
======= =======
Bank debt:
Borrowings $11,624 $16,824
Repayments (4,273) (9,137)
------- -------
Net proceeds from borrowings $ 7,351 $ 7,687
======= =======
</TABLE>
3. Common stock dividends declared during both quarters ended June 30, 1999 and
1998 were $.08 per common share.
4. Comprehensive Income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
------- ------ ------ ------
<S> <C> <C> <C> <C>
Net income $ 2,692 $5,217 $ 5,286 $8,786
Other comprehensive income
(loss), net of tax (benefit)
of ($694), $242, ($2,605)
and ($167), respectively (1,289) 449 (3,835) (311)
------- ------ ------- ------
Comprehensive income $ 1,403 $5,666 $ 1,451 $8,475
======= ====== ======= ======
</TABLE>
The only matter contributing to the other comprehensive income (loss) was the
currency translation adjustment.
-6-
<PAGE>
5. Segment Information:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ------ ------ ------
<S> <C> <C> <C> <C>
Net Sales
Activated Carbon $72,933 $78,567 $138,123 $144,514
Engineered Systems 7,282 7,146 13,884 10,707
------- ------- -------- --------
$80,215 $85,713 $152,007 $155,221
======= ======= ======== ========
Income from operations before
amortization
Activated Carbon $ 5,822 $ 9,869 $ 11,022 $ 18,775
Engineered Systems 434 631 1,333 (349)
------- ------- -------- --------
6,256 10,500 12,355 18,426
Reconciling items
Amortization of intangibles
and organization costs (571) (600) (1,159) (1,201)
Interest income 22 53 34 87
Interest expense (1,245) (1,271) (2,379) (2,446)
Other expense - net (319) (389) (668) (820)
------- ------- -------- --------
Consolidated income before
income taxes and minority
interest $ 4,143 $ 8,293 $ 8,183 $ 14,046
======= ======= ======== ========
</TABLE>
-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 for the three-month period ended June 30, 1999
decreased $5.5 million, or 6.4%, versus the three months ended June 30, 1998.
For the six-month period ended June 30, 1999, consolidated net sales decreased
by $3.2 million or 2.1% 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:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ---------------------------
1999 1998 % Change 1999 1998 % Change
------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Segments/Products
- -----------------
Activated Carbon Segment
Carbon $36,016 $42,048 - 14.3% $ 69,838 $ 77,121 - 9.4%
Service 23,816 23,017 + 3.5 46,918 45,582 + 2.9
Carbon Equipment 6,617 5,000 + 32.3 11,489 9,552 + 20.3
Charcoal and Liquid 6,484 8,502 - 23.7 9,878 12,259 - 19.4
------- ------- ------- -------- -------- ------
72,933 78,567 - 7.2 138,123 144,514 - 4.4
------- ------- ------- ------- -------- ------
Engineered Systems Segment
Advanced Oxidation Tech. 2,885 2,174 + 32.7 4,502 3,895 + 15.6
Advanced Separation Tech. 4,397 4,972 - 11.6 9,382 6,812 + 37.7
------- ------- ------- -------- -------- ------
7,282 7,146 + 1.9 13,884 10,707 + 29.7
------- ------- ------- ------- -------- ------
TOTAL $80,215 $85,713 - 6.4% $152,007 $155,221 - 2.1%
======= ======= ======= ======== ======== ======
Markets
- -------
Industrial
Food $11,895 $13,580 - 12.4% $ 23,740 $ 24,593 - 3.5%
Chemical/Pharmaceutical 6,009 5,514 + 9.0 12,386 10,803 + 14.7
Original Equipment
Manufacturer 11,353 15,365 - 26.1 24,031 28,889 - 16.8
Other 4,974 6,616 - 24.8 10,344 12,835 - 19.4
------- ------- ------- -------- -------- ------
34,231 41,075 - 16.7 70,501 77,120 - 8.6
------- ------- ------- ------- -------- ------
Environmental
Municipal 20,426 16,668 + 22.5 33,470 28,896 + 15.8
Industrial 19,074 19,468 - 2.0 38,158 36,946 + 3.3
------- ------- ------- -------- -------- ------
39,500 36,136 + 9.3 71,628 65,842 + 8.8
------- ------- ------- ------- -------- ------
Consumer 6,484 8,502 - 23.7 9,878 12,259 - 19.4
------- ------- ------- -------- -------- ------
TOTAL $80,215 $85,713 - 6.4% $152,007 $155,221 - 2.1%
======= ======= ======= ======== ======== ======
Geography
- ---------
United States $43,970 $43,678 + 0.7% $ 84,431 $ 81,127 + 4.1%
Europe 25,889 25,450 + 1.7 47,815 43,814 + 9.1
Other 10,356 16,585 - 37.6 19,761 30,280 - 34.7
------- ------- ------- -------- -------- ------
TOTAL $80,215 $85,713 - 6.4% $152,007 $155,221 - 2.1%
======= ======= ======= ======== ======== ======
</TABLE>
Note: Sales, by product, for 1998, have been reclassified to conform with the
1999 presentation.
-8-
<PAGE>
For the quarter, within the activated carbon segment, sales of service and
carbon equipment increased while revenues from carbon and charcoal declined.
These results included a net negative impact associated with foreign exchange of
$0.5 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 compared to the Japanese yen. The net increase within
the engineered systems segment was associated with gains by the Advanced
Oxidation Technologies unit due to improvements associated with multiple
technology projects partially offset by delays in the awarding of customer
contracts to the Advanced Separation Technologies unit. The decrease in sales
of carbon products included some price decreases but was primarily the result of
the non-repeating of activated carbon initial fills in the Japanese municipal
category and to decreases within the U.S. food and original equipment
manufacturer categories. These decreases were partially offset by increases in
U.S. and European municipal markets. Service sales increased primarily in the
U.S. and European municipal markets. Carbon equipment sales increased in the
U.S. environmental municipal and industrial categories. Charcoal sales
decreased due to business lost to competitors. New product sales (sales of
products introduced within the past 5 years), as a percentage of total sales,
was 18% during the quarter ended June 30, 1999 compared to 14% for the similar
period ended June 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 $0.3 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. The other reasons associated with the
changes are virtually the same as for the quarter. 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 $3.7 million from December 31, 1998. New product sales, as a
percentage of total sales, were 18% during the six months ended June 30, 1999
versus 13% for the six months ended June 30, 1998.
Gross profit, before depreciation, as a percentage of net sales, for the three
and six months ended June 30, 1999 were 35.3% and 35.8%, respectively. These
compare to 37.4% and 39.0%, respectively, for the three and six-month periods
ended June 30, 1998. The decline in the activated carbon segment for both
periods was related to competitive pressure on pricing, reduced activated carbon
sales versus relatively fixed manufacturing costs and shifts in sales to higher
cost products that were sold in 1998. This shift also occurred within the
engineered systems segment during the three months ended June 30, 1999. For the
six-month period ended June 30, 1999, this percentage rate for Advanced
Separation Technologies improved due to 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 $0.5 million and $1.0
million, respectively, in the three and six-month periods ended June 30, 1999
versus the comparable periods in 1998 primarily due to depreciation associated
with the Company's new business information system.
Combined, selling, general and administrative expenses and research and
development expenses, were flat in the quarter ended June 30, 1999 versus the
similar period in 1998 due to the net effect of organizational and CEO
-9-
<PAGE>
recruitment costs of $1.4 million offset by other net decreases of $1.3 million
due primarily to the savings associated with the 1998 restructuring. For the
six months ended June 30, 1999, these expenses were down by $1.1 million
resulting primarily from six months savings from the restructuring of operations
in 1998 partially offset by the aforementioned organizational and CEO
recruitment costs. Research and development expenses, as a percentage of net
sales, were 2.5% and 2.6%, respectively, for the three and six-month periods
ended June 30, 1999 versus 2.5% and 2.7%, respectively, for the comparable 1998
periods.
The effective tax rate for the three-month period ended June 30, 1999 was 36.2%
versus 37.0% for the three months ended June 30, 1998. For the six months ended
June 30, 1999, the effective tax rate was 36.1% as compared to 37.2% for the
1998 period. Both reductions were related to higher utilization of foreign tax
credits.
Financial Condition
- -------------------
Working Capital and Liquidity
-----------------------------
Cash flows from operating activities were $9.2 million for the six months
ending June 30, 1999 versus $13.3 million for the comparable 1998 period. The
reduction was due primarily to reduced net income, partially offset by an
increase in depreciation associated with the new business information system,
and a reduced increase in long-term deferred income taxes. The increase in
investment in working capital was stable versus 1998.
The working capital investment increase was primarily due to increased
receivables and other current assets and decreased payables and accruals. The
Company expects to reduce its inventory levels during the balance of 1999 by
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 $2.2 million due to cash outlays for employee
severance costs and benefits in connection with the 1998 restructuring plan.
Currently maturing debt and short-term borrowings increased $7.1 million to
$29.3 million at June 30, 1999. The net impact of foreign currency translation
decreased working capital by $2.6 million reflecting spot foreign exchange rates
at June 30, 1999 and December 31, 1998.
Total debt at June 30, 1999 was $100.1 million, an increase of $6.9 million,
primarily to support working capital investment.
During the quarter, 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.
-10-
<PAGE>
Status of Restructuring of Operations
- -------------------------------------
In the third quarter of 1998, the Company initiated a worldwide plan to
reduce costs and realign the organizational structure. 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. Separations through June 30, 1999
were 128. 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 are expected to 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 six months ended June 30, 1999 was:
<TABLE>
<CAPTION>
Balance Balance
($000) 1-1-99 Payments Exchange 6-30-99
------- -------- -------- --------
<S> <C> <C> <C> <C>
1998 Plan
- ---------
Employee severance and
termination benefit
costs $ 4,393 $(2,123) $ - $ 2,270
Other costs 407 (77) - 330
------- ------- -------- --------
4,800 (2,200) - 2,600
1994 Plan
- ---------
Disposition costs
associated with the
closing of the Brilon
Wald, Germany Plant 109 (38) (8) 63
------- ------- -------- --------
$ 4,909 $(2,238) $(8) $ 2,663
======= ======= ======== ========
</TABLE>
The reserve balances are deemed adequate.
Capital Expenditures and Investments
- ------------------------------------
Capital expenditures for property, plant and equipment totaled $5.1 million
for the six-month period ended June 30, 1999 compared to expenditures of $10.5
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 $1.7 million of
the 1999 expenditures while domestic customer capital expenditures were $0.4
million and capacity and cost reduction related spending was $1.3 million in the
United States and $0.8 million in Europe. Total capital expenditures are
currently expected to be approximately $10.0 million for the year 1999.
-11-
<PAGE>
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 their responses are being analyzed. All are
expected to be compliant before the end of the third quarter.
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 are being developed for all locations to mitigate
risks associated with potential loss of utilities, wide-area networks, etc.
These plans will be finalized in the third quarter of 1999.
Information Technology
- ----------------------
To ensure Year 2000 compliance, the Company is 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 expected to be 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 is expected to be completed during the third quarter of 1999.
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.
Additional costs for Year 2000 compliance are not expected to be material to the
operating results.
-12-
<PAGE>
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 second quarter of 1999, full scale tests were successfully completed
on B-line, D-line, and the reactivation facility at the Big Sandy Plant. No
problems were encountered during testing at the Neville Island and Pearl River
Plants. The Feluy Belgium prime carbon production line was also successfully
tested. The upgrades at the Bodenfelde, Germany Plant are guaranteed by the
vendor, but will not be fully tested until September 1999. The Grays and Carbon
Cloth production facilities in the United Kingdom have been determined to be
Year 2000 compliant.
It now appears that all devices are Year 2000 compliant and current efforts are
focused on contingency planning to deal with possible failures in the utility's
supply systems. An initial plan has been developed and reviewed with the
manufacturing plants. Each plant is preparing its own detailed action plan for
final review by September 30, 1999.
The costs to address the Company's Year 2000 issues in manufacturing have been
estimated in the range of $0.5 million to $0.8 million. Based on expenditures
to date and full scale test results, it appears that the total cost will be
within the estimated range. These expense items include third party consultant
fees and costs to upgrade or replace non-compliant devices. None of the
components of the estimate were contemplated for reasons other than Year 2000
readiness.
The task team is making efforts to ensure that all devices will be Year 2000
ready, however, since the assessment process is still under way, 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 in the third quarter of
1999 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.
-13-
<PAGE>
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.
-14-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------ ---------------------------------------------------
The annual meeting of stockholders was held April 20, 1999. In
connection with the meeting, proxies were solicited pursuant to the
Securities Exchange Act. The following are the voting results on
proposals considered and voted upon at the meeting, all of which were
described in the proxy statement.
1. The nominees for directors listed in the proxy statement were
elected.
Votes For Votes Withheld
------------- -----------------
Class of 2000
----------------------------
Harry H. Weil 30,620,822 562,261
Robert L. Yohe 30,616,641 566,442
Class of 2002
----------------------------
Nick H. Prater 30,618,146 564,937
Seth E. Schofield 30,607,540 562,261
The following directors continued in office after the meeting:
Class of 2002
----------------------------
Robert W. Cruickshank
Arthur L. Goeschel
Thomas A. McConomy
2. The proposal to approve Votes Votes Votes
the readoption and amend- For Against Abstained
ment of the stock option ------------ ----------- -----------
plan was passed. 19,878,173 4,058,591 508,284
Item 6. Exhibits and Reports on Form 8-K
- ------ --------------------------------
(c) Exhibits
None
(d) Reports on Form 8-K
There were no reports on Form 8-K filed for the quarter ended
June 30, 1999.
-15-
<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: August 12, 1999 By /s/Clarence J. Kenney
---------------------------------
Clarence J. Kenney
Interim Chief Financial Officer
-16-
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