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 March 31, 2004 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 1-10776
CALGON CARBON CORPORATION
(Exact name of registrant as specified in its charter)
| Delaware | 25-0530110 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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 91 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). 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 March 31, 2004 | |
| Common Stock, $.01 par value |
39,034,575 shares |
CALGON CARBON CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2004
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.
1
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, 2003 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 three months of 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.
2
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Dollars in Thousands Except Share and Per Share Data)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Net sales |
$ | 71,243 | $ | 64,050 | ||||
| Cost of products sold (excluding depreciation) |
50,012 | 45,231 | ||||||
| Depreciation and amortization |
5,308 | 4,900 | ||||||
| Selling, general and administrative expenses |
14,937 | 14,175 | ||||||
| Research and development expenses |
965 | 1,030 | ||||||
| 71,222 | 65,336 | |||||||
| Income (loss) from operations |
21 | (1,286 | ) | |||||
| Interest income |
209 | 148 | ||||||
| Interest expense |
(680 | ) | (543 | ) | ||||
| Other expense—net |
(268 | ) | (689 | ) | ||||
| Loss before income taxes and minority interest |
(718 | ) | (2,370 | ) | ||||
| Income tax benefit |
(158 | ) | (521 | ) | ||||
| Loss before minority interest |
(560 | ) | (1,849 | ) | ||||
| Minority interest |
11 | 89 | ||||||
| Net loss |
(549 | ) | (1,760 | ) | ||||
| Common stock dividends |
(1,170 | ) | (1,169 | ) | ||||
| Retained earnings, beginning of period |
111,601 | 111,795 | ||||||
| Retained earnings, end of period |
$ | 109,882 | $ | 108,866 | ||||
| Net loss per common share |
||||||||
| Basic and diluted |
$ | (.01 | ) | $ | (.05 | ) | ||
| Weighted average shares outstanding |
||||||||
| Basic |
39,024,316 | 38,984,461 | ||||||
| Diluted |
39,405,304 | 39,034,689 | ||||||
The accompanying notes are an integral part of these financial statements.
3
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Share Data)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 7,501 | $ | 8,954 | ||||
| Receivables (net of allowance of $4,366 and $3,736) |
53,789 | 46,133 | ||||||
| Revenue recognized in excess of billings on uncompleted contracts |
9,167 | 10,697 | ||||||
| Inventories (net of allowance of $1,527 and $694) |
63,713 | 51,811 | ||||||
| Deferred income taxes—current |
9,056 | 9,056 | ||||||
| Other current assets |
4,078 | 4,457 | ||||||
| Total current assets |
147,304 | 131,108 | ||||||
| Property, plant and equipment, net |
134,081 | 128,956 | ||||||
| Investment in Calgon Mitsubishi Chemical Corporation |
7,833 | 6,798 | ||||||
| Intangibles |
13,862 | 3,510 | ||||||
| Goodwill |
36,417 | 18,366 | ||||||
| Deferred income taxes—long term |
9,976 | 9,976 | ||||||
| Other assets |
3,018 | 3,481 | ||||||
| Total assets |
$ | 352,491 | $ | 302,195 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Short-term debt |
$ | 604 | $ | 604 | ||||
| Accounts payable and accrued liabilities |
33,983 | 31,568 | ||||||
| Billings in excess of revenue recognized on uncompleted contracts |
3,176 | 1,339 | ||||||
| Restructuring reserve |
1,163 | 1,195 | ||||||
| Payroll and benefits payable |
9,483 | 8,022 | ||||||
| Accrued income taxes |
9,630 | 9,727 | ||||||
| Total current liabilities |
58,039 | 52,455 | ||||||
| Long-term debt |
88,123 | 53,600 | ||||||
| Deferred income taxes—long term |
10,632 | 11,817 | ||||||
| Other liabilities |
35,481 | 22,171 | ||||||
| Total liabilities |
192,275 | 140,043 | ||||||
| Minority interest |
285 | 279 | ||||||
| Commitments and contingencies |
— | — | ||||||
| Shareholders’ equity: |
||||||||
| Common shares, $.01 par value, 100,000,000 shares authorized, 41,821,833 and 41,793,683 shares issued |
418 | 418 | ||||||
| Additional paid-in capital |
64,814 | 64,669 | ||||||
| Retained earnings |
109,882 | 111,601 | ||||||
| Accumulated other comprehensive income |
11,946 | 12,314 | ||||||
| 187,060 | 189,002 | |||||||
| Treasury stock, at cost, 2,787,258 shares |
(27,129 | ) | (27,129 | ) | ||||
| Total shareholders’ equity |
159,931 | 161,873 | ||||||
| Total liabilities and shareholders’ equity |
$ | 352,491 | $ | 302,195 | ||||
The accompanying notes are an integral part of these financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | (549 | ) | $ | (1,760 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
5,308 | 4,900 | ||||||
| Equity in (income) loss of Calgon Mitsubishi Chemical Corporation |
(520 | ) | 175 | |||||
| Employee benefit plan provisions |
1,110 | 1,275 | ||||||
| Changes in assets and liabilities—net of effects from purchase of business, foreign exchange and non-cash restructuring: |
||||||||
| Decrease in receivables |
2,841 | 1,901 | ||||||
| Increase in inventories |
(1,534 | ) | (1,613 | ) | ||||
| Decrease in other current assets |
2,762 | 2,680 | ||||||
| Decrease in restructuring reserve |
(11 | ) | (106 | ) | ||||
| Decrease in accounts payable and accruals |
(3,403 | ) | (4,220 | ) | ||||
| Decrease in long-term deferred income taxes (net) |
(564 | ) | (1,358 | ) | ||||
| Other items—net |
(702 | ) | (267 | ) | ||||
| Net cash provided by operating activities |
4,738 | 1,607 | ||||||
| Cash flows from investing activities |
||||||||
| Purchase of business (net of cash acquired) |
(35,250 | ) | — | |||||
| Purchase of intangible asset |
(500 | ) | — | |||||
| Property, plant and equipment expenditures |
(3,816 | ) | (1,690 | ) | ||||
| Proceeds from disposals of property, plant and equipment |
21 | 310 | ||||||
| Net cash used in investing activities |
(39,545 | ) | (1,380 | ) | ||||
| Cash flows from financing activities |
||||||||
| Proceeds from borrowings |
93,900 | 51,304 | ||||||
| Repayments of borrowings |
(59,434 | ) | (49,800 | ) | ||||
| Common stock dividends |
(1,170 | ) | (1,169 | ) | ||||
| Net cash provided by financing activities |
33,296 | 335 | ||||||
| Effect of exchange rate changes on cash |
58 | (439 | ) | |||||
| (Decrease) increase in cash and cash equivalents |
(1,453 | ) | 123 | |||||
| Cash and cash equivalents, beginning of period |
8,954 | 4,093 | ||||||
| Cash and cash equivalents, end of period |
$ | 7,501 | $ | 4,216 | ||||
The accompanying notes are an integral part of these financial statements.
5
SELECTED NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. Acquisition
On February 18, 2004, the Company acquired the assets of Waterlink, Incorporated’s (“Waterlink”) United States-based subsidiary Barnebey Sutcliffe Corporation, and 100% of the outstanding common shares of Waterlink (UK) Limited, a holding company that owns 100% of the outstanding common shares of Waterlink’s operating subsidiaries in the United Kingdom (collectively “Waterlink Specialty Products”).
Known as Barnebey Sutcliffe in the United States and Sutcliffe Speakman in the United Kingdom, Waterlink Specialty Products is a leading provider of products, equipment, systems and services related to activated carbon and its uses for water and air purification, solvent recovery, odor control and chemical processing. The primary reasons for the Company’s acquisition of Waterlink Specialty Products and the primary reasons that contributed to a purchase price that resulted in recognition of goodwill are to complement the Company’s existing business in terms of (i) expanding its customer base; (ii) diversifying its product mix; (iii) providing access to profitable, niche markets; and (iv) enhancing profitability and cash flow.
The aggregate purchase price, including direct acquisition costs, was $36.4 million, plus the assumption of certain non-working capital liabilities amounting to $15.0 million. The Company funded approximately $33.3 million of the purchase price through borrowings from its refinanced U.S. revolving credit facility (see