UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2013
OR
|
o |
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 |
|
(I.R.S. Employer |
|
incorporation or organization) |
|
Identification No.) |
|
|
|
|
|
P.O. Box 717, Pittsburgh, PA |
|
15230-0717 |
|
(Address of principal executive offices) |
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(Zip Code) |
(412) 787-6700
(Registrant’s telephone number, including area code)
None
(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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer x |
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Accelerated filer o |
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|
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
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 August 6, 2013 |
|
[Common Stock, $.01 par value per share] |
|
54,258,632 shares |
CALGON CARBON CORPORATION
FORM 10-Q
QUARTER ENDED June 30, 2013
This Quarterly Report on Form 10-Q contains historical information and forward-looking statements. Forward-looking statements typically contain words such as “expect,” “believes,” “estimates,” “anticipates,” or similar words indicating that future outcomes are uncertain. Statements looking forward in time, including statements regarding future growth and profitability, price increases, cost savings, broader product lines, enhanced competitive posture and acquisitions, are included in this Form 10-Q and in the Company’s most recent Annual Report on Form 10-K pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks and uncertainties that may cause Calgon Carbon Corporation’s (the “Company”) actual results in future periods to be materially different from any future performance suggested herein. Therefore, you should not unduly rely on any forward-looking statements contained herein. Further, the Company operates in an industry sector where securities values may be volatile and may be influenced by economic and other factors beyond the Company’s control. Some of the factors that could affect future performance of the Company are changes in, or delays in the implementation of, regulations that cause a market for our products, acquisitions, higher energy and raw material costs, costs of imports and related tariffs, labor relations, capital and environmental requirements, changes in foreign currency exchange rates, borrowing restrictions, validity of patents and other intellectual property, and pension costs. In the context of the forward-looking information provided in this Form 10-Q and in other reports, please refer to the discussions of risk factors and other information detailed in, as well as the other information contained in the Company’s most recent Annual Report on Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made and the Company does not intend to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by the Federal securities laws of the United States.
In reviewing any agreements incorporated by reference in this Form 10-Q, please remember such agreements are included to provide information regarding the terms of such agreements and are not intended to provide any other factual or disclosure information about the Company. The agreements may contain representations and warranties by the Company, which should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties should those statements prove to be inaccurate. The representations and warranties were made only as of the date of the relevant agreement or such other date or dates as may be specified in such agreement and are subject to more recent developments. Accordingly, these representations and warranties alone may not describe the actual state of affairs as of the date they were made or at any other time.
CERTIFICATIONS
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
PART I — CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim condensed consolidated financial statements included herein have been prepared by Calgon Carbon Corporation and subsidiaries (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in audited 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 included herein 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, 2012, as filed with the Securities and Exchange Commission by the Company on Form 10-K.
In management’s opinion, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal and recurring nature, and 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 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands except Per Share Data)
(Unaudited)
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Net sales |
|
$ |
140,432 |
|
$ |
148,403 |
|
$ |
275,472 |
|
$ |
285,011 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Cost of products sold (excluding depreciation) |
|
94,057 |
|
102,456 |
|
186,472 |
|
196,282 |
| ||||
|
Depreciation and amortization |
|
7,305 |
|
6,442 |
|
14,052 |
|
12,955 |
| ||||
|
Selling, general and administrative expenses |
|
17,391 |
|
20,568 |
|
36,917 |
|
42,770 |
| ||||
|
Research and development expenses |
|
1,460 |
|
2,524 |
|
2,862 |
|
4,268 |
| ||||
|
Restructuring (Note 1) |
|
(18 |
) |
— |
|
(42 |
) |
— |
| ||||
|
Litigation and other contingencies |
|
— |
|
(172 |
) |
— |
|
(19 |
) | ||||
|
|
|
120,195 |
|
131,818 |
|
240,261 |
|
256,256 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from operations |
|
20,237 |
|
16,585 |
|
35,211 |
|
28,755 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Interest income |
|
12 |
|
17 |
|
136 |
|
29 |
| ||||
|
Interest expense |
|
(129 |
) |
— |
|
(306 |
) |
(19 |
) | ||||
|
Other expense—net |
|
(341 |
) |
(513 |
) |
(1,169 |
) |
(764 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before income tax provision |
|
19,779 |
|
16,089 |
|
33,872 |
|
28,001 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income tax provision |
|
6,809 |
|
5,205 |
|
11,088 |
|
9,379 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income |
|
12,970 |
|
10,884 |
|
22,784 |
|
18,622 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Other comprehensive income (loss), net of tax (Note 5) |
|
|
|
|
|
|
|
|
| ||||
|
Foreign currency translation |
|
770 |
|
(4,337 |
) |
(5,518 |
) |
(2,343 |
) | ||||
|
Derivatives |
|
(15 |
) |
454 |
|
559 |
|
581 |
| ||||
|
Employee benefit plans |
|
1,713 |
|
(474 |
) |
1,335 |
|
(1,032 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Comprehensive income |
|
$ |
15,438 |
|
$ |
6,527 |
|
$ |
19,160 |
|
$ |
15,828 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Net income per common share |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
0.24 |
|
$ |
0.19 |
|
$ |
0.42 |
|
$ |
0.33 |
|
|
Diluted |
|
$ |
0.24 |
|
$ |
0.19 |
|
$ |
0.42 |
|
$ |
0.33 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
53,799,261 |
|
56,639,330 |
|
53,710,300 |
|
56,575,779 |
| ||||
|
Diluted |
|
54,547,189 |
|
57,190,357 |
|
54,375,535 |
|
57,157,408 |
| ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
ASSETS |
|
|
|
|
| ||
|
Current assets: |
|
|
|
|
| ||
|
Cash and cash equivalents |
|
$ |
20,764 |
|
$ |
18,161 |
|
|
Receivables (net of allowance of $1,646 and $1,362) |
|
100,521 |
|
101,918 |
| ||
|
Revenue recognized in excess of billings on uncompleted contracts |
|
13,538 |
|
14,680 |
| ||
|
Inventories |
|
108,505 |
|
107,166 |
| ||
|
Deferred income taxes — current |
|
17,203 |
|
17,317 |
| ||
|
Other current assets |
|
11,760 |
|
13,964 |
| ||
|
Total current assets |
|
272,291 |
|
273,206 |
| ||
|
|
|
|
|
|
| ||
|
Property, plant and equipment, net |
|
262,602 |
|
262,993 |
| ||
|
Intangibles, net |
|
6,670 |
|
7,388 |
| ||
|
Goodwill |
|
26,330 |
|
27,030 |
| ||
|
Deferred income taxes — long-term |
|
3,675 |
|
3,558 |
| ||
|
Other assets |
|
3,021 |
|
3,594 |
| ||
|
|
|
|
|
|
| ||
|
Total assets |
|
$ |
574,589 |
|
$ |
577,769 |
|
|
|
|
|
|
|
| ||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
| ||
|
Current liabilities: |
|
|
|
|
| ||
|
Accounts payable and accrued liabilities |
|
$ |
56,257 |
|
$ |
76,214 |
|
|
Restructuring reserve (Note 1) |
|
671 |
|
3,226 |
| ||
|
Billings in excess of revenue recognized on uncompleted contracts |
|
5,556 |
|
3,865 |
| ||
|
Payroll and benefits payable |
|
10,888 |
|
10,114 |
| ||
|
Accrued income taxes |
|
2,403 |
|
2,666 |
| ||
|
Short-term debt |
|
61 |
|
19,565 |
| ||
|
Total current liabilities |
|
75,836 |
|
115,650 |
| ||
|
|
|
|
|
|
| ||
|
Long-term debt |
|
56,049 |
|
44,408 |
| ||
|
Deferred income taxes — long-term |
|
15,074 |
|
12,379 |
| ||
|
Accrued pension and other liabilities |
|
52,597 |
|
54,035 |
| ||
|
|
|
|
|
|
| ||
|
Total liabilities |
|
199,556 |
|
226,472 |
| ||
|
|
|
|
|
|
| ||
|
Commitments and contingencies (Note 8) |
|
|
|
|
| ||
|
|
|
|
|
|
| ||
|
Shareholders’ equity: |
|
|
|
|
| ||
|
Common shares, $.01 par value, 100,000,000 shares authorized, 56,799,893 and 56,450,632 shares issued |
|
568 |
|
564 |
| ||
|
Additional paid-in capital |
|
173,513 |
|
168,599 |
| ||
|
Retained earnings |
|
293,295 |
|
270,511 |
| ||
|
Accumulated other comprehensive loss |
|
(20,151 |
) |
(16,527 |
) | ||
|
|
|
447,225 |
|
423,147 |
| ||
|
Treasury stock, at cost, 6,435,860 and 6,415,176 shares |
|
(72,192 |
) |
(71,850 |
) | ||
|
|
|
|
|
|
| ||
|
Total shareholders’ equity |
|
375,033 |
|
351,297 |
| ||
|
|
|
|
|
|
| ||
|
Total liabilities and shareholders’ equity |
|
$ |
574,589 |
|
$ |
577,769 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CALGON CARBON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
|
|
|
Six Months Ended |
| ||||
|
|
|
June 30, |
| ||||
|
|
|
2013 |
|
2012 |
| ||
|
Cash flows from operating activities |
|
|
|
|
| ||
|
Net income |
|
$ |
22,784 |
|
$ |
18,622 |
|
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| ||
|
Depreciation and amortization |
|
14,052 |
|
12,955 |
| ||
|
Employee benefit plan provisions |
|
893 |
|
1,871 |
| ||
|
Stock-based compensation |
|
1,659 |
|
1,390 |
| ||
|
Deferred income tax expense |
|
1,384 |
|
755 |
| ||
|
Restructuring (Note 1) |
|
(42 |
) |
— |
| ||
|
Restructuring cash payments (Note 1) |
|
(3,091 |
) |
— |
| ||
|
Changes in assets and liabilities — net of effects from foreign exchange: |
|
|
|
|
| ||
|
Increase in receivables |
|
(2,351 |
) |
(935 |
) | ||
|
Increase in inventories |
|
(4,399 |
) |
(922 |
) | ||
|
Decrease (increase) in revenue in excess of billings on uncompleted contracts and other current assets |
|
4,392 |
|
(6,570 |
) | ||
|
Decrease in accounts payable, accrued liabilities, and accrued interest |
|
(18,333 |
) |
(61 |
) | ||
|
Pension contributions |
|
(1,182 |
) |
(931 |
) | ||
|
Other items — net |
|
2,033 |
|
(240 |
) | ||
|
Net cash provided by operating activities |
|
17,799 |
|
25,934 |
| ||
|
|
|
|
|
|
| ||
|
Cash flows from investing activities |
|
|
|
|
| ||
|
Proceeds from sale of business (Note 1) |
|
642 |
|
— |
| ||
|
Capital expenditures |
|
(15,978 |
) |
(36,839 |
) | ||
|
Government grants received |
|
1,709 |
|
947 |
| ||
|
Cash released from collateral |
|
— |
|
12 |
| ||
|
Net cash used in investing activities |
|
(13,627 |
) |
(35,880 |
) | ||
|
|
|
|
|
|
| ||
|
Cash flows from financing activities |
|
|
|
|
| ||
|
Japanese Revolving credit facility borrowings — short term (Note 10) |
|
— |
|
10,546 |
| ||
|
Japanese Revolving credit facility repayments — short term (Note 10) |
|
(16,291 |
) |
(8,411 |
) | ||
|
U.S. Revolving credit facility borrowings — long term (Note 10) |
|
43,900 |
|
41,900 |
| ||
|
U.S. Revolving credit facility repayments — long term (Note 10) |
|
(42,450 |
) |
(31,400 |
) | ||
|
Proceeds from debt obligations |
|
10,268 |
|
— |
| ||
|
Reductions of debt obligations |
|
(1,015 |
) |
(1,526 |
) | ||
|
Treasury stock purchased |
|
(342 |
) |
(418 |
) | ||
|
Common stock issued |
|
2,781 |
|
463 |
| ||
|
Excess tax benefit from stock-based compensation |
|
— |
|
(176 |
) | ||
|
Net cash (used in) provided by financing activities |
|
(3,149 |
) |
10,978 |
| ||
|
|
|
|
|
|
| ||
|
Effect of exchange rate changes on cash and cash equivalents |
|
1,580 |
|
1,969 |
| ||
|
|
|
|
|
|
| ||
|
Increase in cash and cash equivalents |
|
2,603 |
|
3,001 |
| ||
|
Cash and cash equivalents, beginning of period |
|
18,161 |
|
13,574 |
| ||
|
Cash and cash equivalents, end of period |
|
$ |
20,764 |
|
$ |
16,575 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CALGON CARBON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
(Unaudited)
1. Restructuring
During the third quarter of 2012, the Company adopted a worldwide strategy to reduce costs and realign the organization structure in response to the global economic slowdown, rising raw material and maintenance costs, and delays in implementation of environmental regulations, which have created a challenging business environment for the Company. As a part of this strategy, the Company permanently closed, and later sold, its Datong, China manufacturing facility, temporarily idled a reactivation facility in Blue Lake, California, and reduced headcount. The Company has also consolidated operations at certain locations and will evaluate non-core businesses for potential divestiture.
For the three and six months ended June 30, 2013, the Company recorded $(18) thousand and $0.5 million, respectively, of restructuring (income) charges which were all within the Activated Carbon and Service segment. The Company also recorded a pre-tax gain of $0.6 million for the sale of its activated carbon manufacturing facility in Datong, China for the period ended March 31, 2013 which was in the Activated Carbon and Service segment. The gain on sale was comprised of the release of foreign currency translation adjustments of $1.0 million which was partially offset by a $0.4 million charge for the write-off of goodwill. The remaining restructuring cash outlays are expected to be made in 2013.
The following table summarizes the activity in the restructuring reserve for the period ended June 30, 2013:
|
(Thousands, except number of employees) |
|
Employee |
|
Gain on Sale |
|
Other |
|
Total |
|
Employees |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual at December 31, 2012 |
|
$ |
3,226 |
|
$ |
— |
|
$ |
— |
|
$ |
3,226 |
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges (income) |
|
444 |
|
(578 |
) |
92 |
|
(42 |
) |
4 |
| ||||
|
Payments |
|
(2,999 |
) |
— |
|
(92 |
) |
(3,091 |
) |
(61 |
) | ||||
|
Non-cash charges |
|
— |
|
578 |
|
— |
|
578 |
|
— |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Accrual at June 30, 2013 |
|
$ |
671 |
|
$ |
— |
|
$ |
— |
|
$ |
671 |
|
10 |
|
2. Inventories
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
|
|
|
|
|
| ||
|
Raw materials |
|
$ |
33,290 |
|
$ |
29,353 |
|
|
Finished goods |
|
75,215 |
|
77,813 |
| ||
|
|
|
$ |
108,505 |
|
$ |
107,166 |
|
Inventories are recorded net of reserves of $1.7 million and $1.8 million for obsolete and slow-moving items at June 30, 2013 and December 31, 2012, respectively.
3. Supplemental Cash Flow Information
Cash paid for interest was $0.5 million for both the six months ended June 30, 2013 and 2012. Income taxes paid, net of refunds, were $5.5 million and $5.8 million, for the six months ended June 30, 2013 and 2012, respectively.
The Company has reflected a $0.9 million decrease and a $0.4 million increase in accounts payable and accrued liabilities for changes in unpaid capital expenditures for the six months ended June 30, 2013 and 2012, respectively.
4. Dividends
The Company’s Board of Directors did not declare or pay a dividend for the three or six month periods ended June 30, 2013 and 2012.
5. Accumulated Other Comprehensive Income (Loss)
The following table provides details on the changes in the balances of each component of accumulated other comprehensive loss, net of tax, at June 30, 2013:
|
|
|
Foreign |
|
|
|
|
|
Accumulated |
| ||||
|
|
|
Currency |
|
Pension |
|
|
|
Other |
| ||||
|
|
|
Translation |
|
Benefit |
|
|
|
Comprehensive |
| ||||
|
(Dollars in thousands) |
|
Adjustments |
|
Adjustments |
|
Derivatives |
|
Loss |
| ||||
|
Balance at December 31, 2012 |
|
$ |
17,098 |
|
$ |
(33,718 |
) |
$ |
93 |
|
$ |
(16,527 |
) |
|
Other comprehensive income (loss) before reclassifications |
|
(4,486 |
) |
115 |
|
564 |
|
(3,807 |
) | ||||
|
Amounts reclassified from other comprehensive income (loss) |
|
(1,032 |
) |
1,220 |
|
(5 |
) |
183 |
| ||||
|
Net current-period other comprehensive income (loss) |
|
(5,518 |
) |
1,335 |
|
559 |
|
(3,624 |
) | ||||
|
Balance at June 30, 2013 |
|
$ |
11,580 |
|
$ |
(32,383 |
) |
$ |
652 |
|
$ |
(20,151 |
) |
The following table provides details on amounts reclassified out of each component of accumulated other comprehensive loss for the six months ended June 30, 2013:
|
|
|
Amount Reclassified from |
|
| |
|
Details about Accumulated Other |
|
Accumulated Other |
|
Affected Line Item in the Statement | |
|
Comprehensive Loss Components |
|
Comprehensive Loss (1) |
|
Where Net Income is Presented | |
|
Derivatives (Note 7) |
|
|
|
| |
|
Foreign Exchange Contracts |
|
$ |
430 |
|
Cost of products sold (excluding depreciation) |
|
Natural Gas Contracts |
|
(406 |
) |
Cost of products sold (excluding depreciation) | |
|
|
|
24 |
|
Total before tax | |
|
|
|
(19 |
) |
Tax (expense) or benefit | |
|
|
|
$ |
5 |
|
Net of tax |
|
|
|
|
|
| |
|
Pension Benefit Adjustments (Note 11) |
|
|
|
| |
|
Prior-service costs |
|
$ |
(38 |
) |
(2) |
|
Actuarial losses |
|
(1,920 |
) |
(2) | |
|
|
|
(1,958 |
) |
Total before tax | |
|
|
|
738 |
|
Tax (expense) or benefit | |
|
|
|
$ |
(1,220 |
) |
Net of tax |
|
|
|
|
|
| |
|
Foreign Currency Translation Adjustments |
|
|
|
| |
|
Sale of foreign subsidiary (Note 1) |
|
$ |
1,032 |
|
Restructuring (3) |
|
|
|
1,032 |
|
Total before tax | |
|
|
|
— |
|
Tax (expense) or benefit | |
|
|
|
$ |
1,032 |
|
Net of tax |
|
|
|
|
|
| |
|
Total reclassifications for the period |
|
$ |
(183 |
) |
Net of tax |
(1) Amounts in parentheses indicate reductions to income/increases to losses.
(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.
(3) The adjustment for 2013 relates to the Company’s sale of its activated carbon manufacturing facility in Datong, China.
Foreign currency translation adjustments exclude income tax expense (benefit) for the earnings of the Company’s non-U.S. subsidiaries as management believes these earnings will be reinvested for an indefinite period of time. Determination of the amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is not practicable.
The income tax expense associated with the Company’s pension benefits included in accumulated other comprehensive loss was $19.3 million and $20.0 million at June 30, 2013 and December 31, 2012, respectively. The income tax benefit associated with the Company’s derivatives included in accumulated other comprehensive loss was $(0.4) million and $(29) thousand at June 30, 2013 and December 31, 2012, respectively.
The following table contains the components of income tax expense (benefit) included in other comprehensive income (loss):
|
|
|
Foreign Currency Translation |
|
Pension Benefits |
|
Derivatives |
| ||||||||||||
|
|
|
Three Months |
|
Six Months |
|
Three Months |
|
Six Months |
|
Three Months |
|
Six Months |
| ||||||
|
(Dollars in millions) |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
|
Ended |
| ||||||
|
June 30, 2013 |
|
$ |
(0.1 |
) |
$ |
0.1 |
|
$ |
1.0 |
|
$ |
0.7 |
|
$ |
— |
|
$ |
0.4 |
|
|
June 30, 2012 |
|
0.2 |
|
0.1 |
|
(0.3 |
) |
(0.6 |
) |
0.3 |
|
0.4 |
| ||||||
6. Segment Information
The Company’s management has identified three segments based on the product line and associated services. Those segments include Activated Carbon and Service, Equipment, and Consumer. The Company’s chief operating decision maker, its chief executive officer, receives and reviews financial information in this format. The Activated Carbon and Service segment manufactures granular activated carbon for use in applications to remove organic compounds from liquids, gases, water, and air. This segment also consists of services related to activated carbon including reactivation of spent carbon and the leasing, monitoring, and maintenance of carbon fills at customer sites. The service portion of this segment also includes services related to the Company’s ion exchange technologies for treatment of groundwater and process streams. The Equipment 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: ballast water, ultraviolet light, advanced ion exchange separation, and carbon adsorption. The Consumer segment supplies activated carbon for use in military, industrial, and medical applications. The following segment information represents the results of operations:
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||||||||
|
|
|
June 30, |
|
June 30, |
| ||||||||
|
|
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Net sales |
|
|
|
|
|
|
|
|
| ||||
|
Activated Carbon and Service |
|
$ |
124,009 |
|
$ |
126,353 |
|
$ |
242,906 |
|
$ |
243,590 |
|
|
Equipment |
|
14,302 |
|
19,887 |
|
28,210 |
|
36,005 |
| ||||
|
Consumer |
|
2,121 |
|
2,163 |
|
4,356 |
|
5,416 |
| ||||
|
|
|
$ |
140,432 |
|
$ |
148,403 |
|
$ |
275,472 |
|
$ |
285,011 |
|
|
Income (loss) from operations before depreciation, amortization, and restructuring |
|
|
|
|
|
|
|
|
| ||||
|
Activated Carbon and Service |
|
$ |
27,706 |
|
$ |
20,526 |
|
$ |
48,605 |
|
$ |
37,829 |
|
|
Equipment |
|
(624 |
) |
1,999 |
|
(231 |
) |
2,531 |
| ||||
|
Consumer |
|
442 |
|
502 |
|
847 |
|
1,350 |
| ||||
|
|
|
27,524 |
|
23,027 |
|
49,221 |
|
41,710 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
| ||||
|
Activated Carbon and Service |
|
6,353 |
|
5,650 |
|
12,261 |
|
11,423 |
| ||||
|
Equipment |
|
789 |
|
632 |
|
1,466 |
|
1,213 |
| ||||
|
Consumer |
|
163 |
|
160 |
|
325 |
|
319 |
| ||||
|
|
|
7,305 |
|
6,442 |
|
14,052 |
|
12,955 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income from operations before restructuring |
|
20,219 |
|
16,585 |
|
35,169 |
|
28,755 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Reconciling items: |
|
|
|
|
|
|
|
|
| ||||
|
Restructuring (Note 1) |
|
18 |
|
— |
|
42 |
|
— |
| ||||
|
Interest income |
|
12 |
|
17 |
|
136 |
|
29 |
| ||||
|
Interest expense |
|
(129 |
) |
— |
|
(306 |
) |
(19 |
) | ||||
|
Other expense — net |
|
(341 |
) |
(513 |
) |
(1,169 |
) |
(764 |
) | ||||
|
Income before income tax provision |
|
$ |
19,779 |
|
$ |
16,089 |
|
$ |
33,872 |
|
$ |
28,001 |
|
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||
|
Total Assets |
|
|
|
|
| ||
|
Activated Carbon and Service |
|
$ |
515,524 |
|
$ |
510,550 |
|
|
Equipment |
|
52,506 |
|
60,191 |
| ||
|
Consumer |
|
6,559 |
|
7,028 |
| ||
|
Consolidated total assets |
|
$ |
574,589 |
|
$ |
577,769 |
|
7. Derivative Instruments
The Company’s corporate and foreign subsidiaries use foreign currency forward exchange contracts and foreign exchange option contracts to limit the exposure of exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures for periods consistent with the expected cash flow of the underlying transactions. The foreign currency forward exchange and foreign exchange option contracts generally mature within eighteen months and are designed to limit exposure to exchange rate fluctuations. The Company also uses cash flow hedges to limit the exposure to changes in natural gas prices. The natural gas forward contracts generally mature within one to eighteen months. The Company enters into derivative financial instruments with high credit quality counterparties and diversifies its positions among such counterparties. In addition, various master netting arrangements are in place with counterparties to facilitate settlement of gains and losses on these contracts. The Company does not currently offset derivative positions on these contracts. The Company accounts for its derivative instruments under Accounting Standards Codification (ASC) 815 “Derivatives and Hedging.”
The fair value of outstanding derivative contracts recorded as assets in the accompanying condensed consolidated balance sheets were as follows:
|
|
|
|
|
June 30, |
|
December 31, |
| ||
|
Asset Derivatives |
|
Balance Sheet Locations |
|
2013 |
|
2012 |
| ||
|
Derivatives designated as hedging instruments under ASC 815: |
|
|
|
|
|
|
| ||
|
Foreign exchange contracts |
|
Other current assets |
|
$ |
1,084 |
|
$ |
545 |
|
|
Foreign exchange contracts |
|
Other assets |
|
53 |
|
142 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total derivatives designated as hedging instruments under ASC 815 |
|
|
|
1,137 |
|
687 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Derivatives not designated as hedging instruments under ASC 815: |
|
|
|
|
|
|
| ||
|
Foreign exchange contracts |
|
Other current assets |
|
746 |
|
433 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total asset derivatives |
|
|
|
$ |
1,883 |
|
$ |
1,120 |
|
The fair value of outstanding derivative contracts recorded as liabilities in the accompanying condensed consolidated balance sheets were as follows:
|
|
|
|
|
June 30, |
|
December 31, |
| ||
|
Liability Derivatives |
|
Balance Sheet Locations |
|
2013 |
|
2012 |
| ||
|
Derivatives designated as hedging instruments under ASC 815: |
|
|
|
|
|
|
| ||
|
Foreign exchange contracts |
|
Accounts payable and accrued liabilities |
|
$ |
101 |
|
$ |
191 |
|
|
Natural gas contracts |
|
Accounts payable and accrued liabilities |
|
— |
|
360 |
| ||
|
Foreign exchange contracts |
|
Accrued pension and other liabilities |
|
22 |
|
61 |
| ||
|
Natural gas contracts |
|
Accrued pension and other liabilities |
|
133 |
|
— |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total derivatives designated as hedging instruments under ASC 815 |
|
|
|
256 |
|
612 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Derivatives not designated as hedging Instruments under ASC 815: |
|
|
|
|
|
|
| ||
|
Foreign exchange contracts |
|
Accounts payable and accrued liabilities |
|
94 |
|
34 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Total liability derivatives |
|
|
|
$ |
350 |
|
$ |
646 |
|
In accordance with ASC 820, “Fair Value Measurements and Disclosures,” the fair value of the Company’s foreign exchange forward contracts, foreign exchange option contracts, and natural gas forward contracts is determined using Level 2 inputs, which are defined as observable inputs. The inputs used are from market sources that aggregate data based upon market transactions.
The use of derivatives exposes the Company to the risk that a counter party may default on a derivative contract. The aggregate fair value of the Company’s derivative instruments in asset positions as of June 30, 2013 was $1.9 million, representing the maximum loss that the Company would recognize at that date if all counterparties failed to perform as contracted. The Company has entered into master agreements with counterparties for its foreign exchange contracts that may allow for netting of exposures in the event of default or termination of the counterparty agreement due to breach of contract. The Company does not net its derivative positions by counterparty for purposes of balance sheet presentation and disclosure.
The gross and net amounts of derivative assets and liabilities were as follows (in thousands):
|
|
|
June 30, 2013 |
|
December 31, 2012 |
| ||||||||
|
|
|
Fair Value |
|
Fair Value of |
|
Fair Value |
|
Fair Value of |
| ||||
|
Gross derivative amounts recognized in the balance sheet |
|
$ |
1,883 |
|
$ |
350 |
|
$ |
1,120 |
|
$ |
646 |
|
|
Gross derivative amounts not offset in the balance sheet that are eligible for offsetting |
|
|
|
|
|
|
|
|
| ||||
|
Derivatives — foreign currency contracts |
|
(217 |
) |
(217 |
) |
(286 |
) |
(286 |
) | ||||
|
Net amount |
|
$ |
1,666 |
|
$ |
133 |
|
$ |
834 |
|
$ |
360 |
|
Cash Flow Hedges
For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of accumulated other comprehensive income (OCI) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings and were not material for the three and six months ended June 30, 2013 and 2012, respectively.
The following table provides details on the changes in accumulated OCI relating to derivative assets and liabilities that qualified for cash flow hedge accounting.
|
|
|
Three Months Ended |
|
Six Months Ended |
| ||
|
|
|
June 30, 2013 |
|
June 30, 2013 |
| ||
|
|
|
|
|
|
| ||
|
Accumulated OCI derivative gain or (loss) at April 1, 2013 and January 1, 2013, respectively |
|
$ |
1,064 |
|
$ |
74 |
|
|
Effective portion of changes in fair value |
|
109 |
|
1,142 |
| ||
|
Reclassifications from accumulated OCI derivative to earnings |
|
(68 |
) |
(24 |
) | ||
|
Foreign currency translation |
|
(36 |
) |
(123 |
) | ||
|
Accumulated OCI derivative gain or (loss) at June 30, 2013 |
|
$ |
1,069 |
|
$ |
1,069 |
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
Recognized in OCI on Derivatives |
| ||||
|
|
|
(Effective Portion) |
| ||||
|
|
|
Three Months Ended |
| ||||
|
|
|
June 30, |
| ||||
|
Derivatives in ASC 815 Cash Flow Hedging Relationships: |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
$ |
211 |
|
$ |
222 |
|
|
Natural Gas Contracts |
|
(102 |
) |
148 |
| ||
|
Total |
|
$ |
109 |
|
$ |
370 |
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
Recognized in OCI on Derivatives |
| ||||
|
|
|
(Effective Portion) |
| ||||
|
|
|
Six Months Ended |
| ||||
|
|
|
June 30, |
| ||||
|
Derivatives in ASC 815 Cash Flow Hedging Relationships: |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
$ |
1,209 |
|
$ |
432 |
|
|
Natural Gas Contracts |
|
(67 |
) |
(285 |
) | ||
|
Total |
|
$ |
1,142 |
|
$ |
147 |
|
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Reclassified from Accumulated |
| ||||
|
|
|
|
|
OCI in Income (Effective Portion) (1) |
| ||||
|
|
|
Location of Gain or |
|
Three Months Ended |
| ||||
|
Derivatives in ASC 815 Cash Flow |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Relationships: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
Cost of products sold (excluding depreciation) |
|
$ |
260 |
|
$ |
109 |
|
|
Natural Gas Contracts |
|
Cost of products sold (excluding depreciation) |
|
(192 |
) |
(464 |
) | ||
|
Total |
|
|
|
$ |
68 |
|
$ |
(355 |
) |
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Reclassified from Accumulated |
| ||||
|
|
|
|
|
OCI in Income (Effective Portion) (1) |
| ||||
|
|
|
Location of Gain or |
|
Six Months Ended |
| ||||
|
Derivatives in ASC 815 Cash Flow |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Relationships: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
Cost of products sold (excluding depreciation) |
|
$ |
430 |
|
$ |
130 |
|
|
Natural Gas Contracts |
|
Cost of products sold (excluding depreciation) |
|
(406 |
) |
(922 |
) | ||
|
Total |
|
|
|
$ |
24 |
|
$ |
(792 |
) |
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
|
Derivatives (Ineffective |
| ||||
|
|
|
|
|
Portion and Amount |
| ||||
|
|
|
|
|
Excluded from |
| ||||
|
|
|
|
|
Effectiveness Testing) (2) |
| ||||
|
|
|
Location of Gain or |
|
Three Months Ended |
| ||||
|
Derivatives in ASC 815 Cash Flow |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Relationships: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
Other expense — net |
|
$ |
— |
|
$ |
(1 |
) |
|
Total |
|
|
|
$ |
— |
|
$ |
(1 |
) |
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
|
Derivatives (Ineffective |
| ||||
|
|
|
|
|
Portion and Amount |
| ||||
|
|
|
|
|
Excluded from |
| ||||
|
|
|
|
|
Effectiveness Testing) (2) |
| ||||
|
|
|
Location of Gain or |
|
Six Months Ended |
| ||||
|
Derivatives in ASC 815 Cash Flow |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Relationships: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts |
|
Other expense — net |
|
$ |
— |
|
$ |
(2 |
) |
|
Total |
|
|
|
$ |
— |
|
$ |
(2 |
) |
(1) Assuming market rates remain constant with the rates at June 30, 2013, a gain of $0.7 million is expected to be recognized in earnings over the next 12 months.
(2 ) For the three and six months ended June 30, 2013 and 2012, the amount of gain (loss) recognized in income was all attributable to the ineffective portion of the hedging relationships.
The Company had the following outstanding derivative contracts that were entered into to hedge forecasted transactions:
|
|
|
June 30, |
|
December 31, |
| ||
|
(in thousands except for mmbtu) |
|
2013 |
|
2012 |
| ||
|
Natural gas contracts (mmbtu) |
|
460,000 |
|
235,000 |
| ||
|
Foreign exchange contracts |
|
$ |
48,313 |
|
$ |
42,399 |
|
Other
The Company has also entered into certain derivatives to minimize its exposure to exchange rate fluctuations on certain foreign currency receivables, payables, and other known and forecasted transactional exposures. The Company has not qualified these contracts for hedge accounting treatment and therefore, the fair value gains and losses on these contracts are recorded in earnings as follows:
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
|
Derivatives |
| ||||
|
|
|
Location of Gain or |
|
Three Months Ended |
| ||||
|
Derivatives Not Designated as |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Instruments Under ASC 815: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts * |
|
Other expense - net |
|
$ |
99 |
|
$ |
(335 |
) |
|
Total |
|
|
|
$ |
99 |
|
$ |
(335 |
) |
|
|
|
|
|
Amount of Gain or (Loss) |
| ||||
|
|
|
|
|
Recognized in Income on |
| ||||
|
|
|
|
|
Derivatives |
| ||||
|
|
|
Location of Gain or |
|
Six Months Ended |
| ||||
|
Derivatives Not Designated as |
|
(Loss) Recognized in |
|
June 30, |
| ||||
|
Hedging Instruments Under ASC 815: |
|
Income on Derivatives |
|
2013 |
|
2012 |
| ||
|
|
|
|
|
|
|
|
| ||
|
Foreign Exchange Contracts * |
|
Other expense - net |
|
$ |
681 |
|
$ |
370 |
|
|
Total |
|
|
|
$ |
681 |
|
$ |
370 |
|
*As of June 30, 2013 and 2012, these foreign exchange contracts were entered into and settled during the respective periods.
Management’s policy for managing foreign currency risk is to use derivatives to hedge up to 75% of the forecasted intercompany sales to its European, Canadian, and Japanese subsidiaries. The hedges involving foreign currency derivative instruments do not span a period greater than eighteen months from the contract inception date. Management uses various hedging instruments including, but not limited to foreign currency forward contracts, foreign currency option contracts and foreign currency swaps. Management’s policy for managing natural gas exposure is to use derivatives to hedge from zero to 75% of the forecasted natural gas requirements. These cash flow hedges currently span up to eighteen months from the contract inception date. Hedge effectiveness is measured on a quarterly basis and any portion of ineffectiveness is recorded directly to the Company’s earnings.
8. Commitments and Contingencies
Waterlink
In conjunction with the February 2004 purchase of substantially all of Waterlink Inc.’s (Waterlink) operating assets and the stock of Waterlink’s U.K. subsidiary, environmental studies were performed on Waterlink’s Columbus, Ohio property by environmental consulting firms that provided an identification and characterization of certain areas of contamination. In addition, these firms identified alternative methods of remediating the property and prepared cost evaluations of the various alternatives. The Company concluded from the information in the studies that a loss at this property is probable and recorded the liability. At June 30, 2013 the balance recorded as a component of accounts payable and accrued liabilities and accrued pension and other liabilities was $0.2 million and $1.0 million, respectively. At December 31, 2012 the balance recorded as a component of accrued pension and other liabilities was $1.4 million. Liability estimates are based on an evaluation of, among other factors, currently available facts, existing technology, presently enacted laws and regulations, and the remediation experience of experts in groundwater remediation. It is possible that a further change in the estimate of this obligation will occur as remediation progresses. The Company incurred $0.2 million and $0.4 million of environmental remediation costs for the six month periods ended June 30, 2013 and 2012, respectively. Remediation activities are ongoing and are currently expected to be completed by the end of 2014.
Carbon Imports
General Anti-Dumping Background: On March 8, 2006, the Company and another U.S. producer of activated carbon (collectively the “Petitioners”) formally requested that the United States Department of Commerce investigate unfair pricing of certain thermally activated carbon imported from the People’s Republic of China.
On March 2, 2007, the Commerce Department published its final determination (subsequently amended) finding that imports of the subject merchandise from China were being unfairly priced, or dumped, and that anti-dumping duties should be imposed to offset the amount of the unfair pricing. The resultant tariff rates ranged from 61.95% ad valorem (i.e., of the entered value of the goods) to 228.11% ad valorem. Following a finding by the U.S. International Trade Commission that the domestic industry was injured by unfairly traded imports of activated carbon from China, an anti-dumping order imposing these tariffs was issued by the U.S. Department of Commerce and was published in the Federal Register on April 27, 2007. All imports from China remain subject to the order. Importers of subject activated carbon from China are required to make cash deposits of estimated anti-dumping duties at the time the goods are entered into the United States’ customs territory. Final assessment of duties and duty deposits are subject to revision based on annual retrospective reviews conducted by the Commerce Department.
The Company is both a domestic producer, exporter from China (through its wholly-owned subsidiary Calgon Carbon (Tianjin) Co., Ltd.), and a U.S. importer of the activated carbon that is subject to the anti-dumping order. As such, the Company’s involvement in the Commerce Department’s proceedings is both as a domestic producer (a “petitioner”) and as a foreign exporter (a “respondent”).
The Company’s role as an importer, which has in the past (and may in the future) required it to pay anti-dumping duties, results in a contingent liability related to the final amount of tariffs that are ultimately assessed on the imported product following the Commerce Department’s periodic review of relevant shipments and calculation of the anti-dumping duties due. The amount of estimated anti-dumping tariffs payable on goods imported into the United States is subject to review and retroactive adjustment based on the actual amount of dumping that is found on entries made during a given annual period. As a result of proceedings before the Commerce Department that concluded in November 2011, the Company is currently able to import activated carbon from Calgon Carbon (Tianjin) into the United States without posting a cash deposit. As noted above, however, anti-dumping duties could be imposed on these shipments in the future, as a result of on-going proceedings before the Commerce Department.
As part of its standard process, the Commerce Department conducts annual reviews of sales made to the first unaffiliated U.S. customer, typically over the prior 12-month period. These reviews will be conducted for at least five years subsequent to a determination in 2013 finding that the anti-dumping duty order should remain in effect, and can result in changes to the anti-dumping tariff rate (either increasing or reducing the rate) applicable to any foreign exporter. Revision of tariff rates has two effects. First, it will alter the actual amount of tariffs that U.S. Customs and Border Protection (“Customs”) will collect for the period reviewed, by either collecting additional duties above those deposited with Customs by the importer at the time of entry or refunding a portion of the duties deposited at the time of importation to reflect a decline in the margin of dumping. If the actual amount of tariffs owed increases, Customs will require the U.S. importer to pay the difference, plus interest. Conversely, if the tariff rate decreases, any difference will be refunded by Customs to the U.S. importer with interest. Second, the revised rate becomes the cash deposit rate applied to future entries, and can either increase or decrease the amount of duty deposits an importer will be required to post at the time of importation.
Period of Review I: As an importer of activated carbon from China, and in light of the successful anti-dumping tariff case, the Company was required to pay deposits of estimated anti-dumping duties at the rate of 84.45% ad valorem to Customs on entries made on or after October 11, 2006 through March 1, 2007. From March 2, 2007 through March 29, 2007, the anti-dumping duty deposit rate was 78.89%. From March 30, 2007 through April 8, 2007, the anti-dumping duty deposit rate was 69.54%. Because of limits on the government’s legal authority to impose provisional duties on imports prior to issuance of a final determination, entries made between April 9, 2007 and April 18, 2007 were not subject to anti-dumping duty assessments. For the period from April 19, 2007 through November 9, 2009, estimated anti-dumping duties were deposited at a rate of 69.54% ad valorem.
On November 10, 2009, the Commerce Department announced the final results of its review of the tariff period beginning October 11, 2006 through March 31, 2008 (period of review (“POR”) I). Based on the POR I results, the Company’s ongoing duty deposit rate was adjusted from 69.54% to 14.51% (as further adjusted by .07% for certain ministerial errors as published in the Federal Register on December 17, 2009) for entries made subsequent to the announcement. The Department of Commerce determined an assessment rate (final duty to be collected) on the entries made in this period of 31.93% ad valorem, which is substantially lower than the original amounts secured by bonds and cash. Accordingly, the Company reduced its recorded liability for unpaid deposits in POR I
and recorded a receivable of $1.6 million reflecting expected refunds for tariff deposits made during POR I as a result of the announced decrease in the POR I tariff assessment rate. The Company had received the $1.6 million as of December 31, 2012.
Period of Review II: On April 1, 2009, the Commerce Department published a formal notice allowing parties to request a second annual administrative review of the anti-dumping duty order covering the period April 1, 2008 through March 31, 2009 (POR II). Requests for review were due no later than April 30, 2009. The Company, in its capacity as a U.S. producer and separately as a Chinese exporter, elected not to participate in this administrative review. By not participating in the review, the Company’s duty deposits made during POR II became final and are not subject to further adjustment.
On November 17, 2010, the Commerce Department announced the results of its review for POR II. Because the Company was not involved in this review its deposit rates did not change from the rate of 14.51%, which was established during POR I. The cooperative respondents involved in POR II that did not receive a company-specific rate received a deposit rate of $0.127 per pound.
Period of Review III: On April 1, 2010, the Commerce Department published a formal notice allowing parties to request a third annual administrative review of the anti-dumping duty order covering the period April 1, 2009 through March 31, 2010 (“POR III”). On October 31, 2011, the Commerce Department published the results of its review of POR III. Based on the POR III results, the Company’s ongoing duty deposit rate was adjusted to zero. The Company recorded a receivable of $1.1 million reflecting expected refunds for duty deposits made during POR III as a result of the announced decrease in the POR III assessment rate. The Commerce Department continued to assign cooperative respondents involved in POR III a deposit rate of $0.127 per pound. In early December 2011, several separate rate respondents appealed the Commerce Department’s final results of POR III. The Company does not expect any of the appeals to be successful. However, in the event the court finds merit in the arguments raised in the appeals, the Company does not expect the revised rates to materially impact the anticipated $1.1 million of expected refunds for tariff deposits it made during POR III. The main impact that a successful appeal would have is related to the amount of anti-dumping duties assessed on imports by the cooperative respondents that were entered into the United States between April 1, 2008 and March 31, 2009. An initial decision from the court in the POR III appeal process is expected during the third quarter of 2013.
Period of Review IV: On April 1, 2011, the Commerce Department published a formal notice allowing parties to request a fourth annual administrative review of the anti-dumping duty order covering the period April 1, 2010 through March 31, 2011 (“POR IV”). On November 9, 2012, the Commerce Department published the final results of its review of POR IV. Specifically, Commerce calculated anti-dumping margins for the mandatory respondents it examined ranging from $0.20 per pound (Jacobi Carbons AB and its affiliates) to $0.96 per pound (Ningxia Guanghua Cherishmet Activated Carbon Co., Ltd. and its affiliates), and it calculated an anti-dumping margin of $0.47 per pound for the cooperative, separate rate respondents whose shipments of activated carbon to the United States were not individually reviewed. The Commerce Department also calculated a $0.00 anti-dumping margin for Datong Juqiang Activated Carbon Co., Ltd. The Company, as a Chinese exporter and a U.S.
importer, elected not to participate as a respondent in this administrative review. By not participating as a respondent in the review, the Company’s tariff deposits made at a rate of 14.51% during POR IV became final and are not subject to further adjustment. The Company’s ongoing deposit rate continues to be zero which was a result of the company-specific rate calculated in POR III. Appeals challenging the Commerce Department’s final results for POR IV have been commenced before the U.S. Court of International Trade by Jacobi Carbons AB, Ningxia Guanghua Cherishment Activated Carbon Co., Ltd. and its affiliates; Tangshan Solid Carbon Co., Ltd.; Carbon Activated Corporation and Car Go Worldwide, Inc.; and Shanxi Industry Technology Trading Co., Ltd. The Company does not expect an initial decision from the court concerning these appeals before the end of 2013, and expects that this litigation will not directly impact the Company’s operations.
Period of Review V: On April 2, 2012, the Commerce Department published a formal notice allowing parties to request a fifth annual administrative review of the anti-dumping duty order covering the period April 1, 2011 through March 31, 2012 (“POR V”). Requests for review were due no later than April 30, 2012. On July 11, 2012, the Commerce Department announced its selection of Jacobi Carbons AB and Ningxia Huahui Activated Carbon Co, Ltd. as the two mandatory respondents for POR V. Albemarle Corporation has requested a review of Calgon Carbon (Tianjin) for POR V. The analysis of POR V data began in 2012 and the preliminary results of the Commerce Department’s review of POR V were announced on May 3, 2013. The Commerce Department calculated preliminary anti-dumping margins for the mandatory respondents that it examined ranging from $0.13 per pound (Ningxia Huahui Activated Carbon Co.) to $0.25 per pound (Jacobi Carbons AB and its affiliates), and as a result, it calculated a preliminary anti-dumping margin of $0.19 per pound for the cooperative, separate rate respondents whose shipments of activated carbon to the United States were not individually reviewed. These preliminary margins are subject to change by the final determination, which will not be issued until mid-November 2013.
Sunset Review: In March 2012, the Commerce Department and U.S. International Trade Commission (“ITC”) initiated proceedings as part of a five-year “sunset” review to evaluate whether the anti-dumping order should be continued for an additional five years. The Company, and two other U. S. producers of activated carbon, participated in the review to support continuation of the anti-dumping order for an additional five years. The Company maintained that the continuation of the anti-dumping order was appropriate as the Commerce Department has determined that Chinese producers and exporters have continued — and, absent continuation of the anti-dumping order, will in the future continue — to sell activated carbon in the United States at unfairly low prices. This is demonstrated by the positive anti-dumping duty margins and deposit rates determined during the various annual reviews conducted by the Commerce Department since the anti-dumping order took effect in April 2007. The Company asserted that the disciplining effect of the order played an important role in maintaining fair market pricing of the activated carbon market overall. Without the anti-dumping order in place, the Company argued that Chinese producers and exporters would resume or increase dumping of certain thermally activated carbon in the United States. Since the anti-dumping order was published, the Company has reduced its imports of covered activated carbon products from China and has increased production of activated carbon in the United States. On June 6, 2012, the Commerce Department published in the Federal Register its final results in an expedited sunset review, and determined that absent continuation of the anti-dumping order dumping of Chinese
activated carbon in the United States would be likely to continue or recur. As a result, it determined the order should be continued for an additional five years.
On June 4, 2012 the ITC voted unanimously to conduct a full review of the anti-dumping order. As a result, the agency utilized a process similar to its original injury investigation, where the agency distributed detailed questionnaires to gather information for its investigation from domestic producers, foreign producers, U.S. importers, and purchasers, and conducted a hearing on December 18, 2012. The Company and the two other U.S. producers of activated carbon, as well as a U.S. importer of activated carbon, participated in the hearing. Based on the information gathered by the agency during its review, the ITC reached a unanimous affirmative determination on February 8, 2013, voting to continue the anti-dumping order for an additional five years. The Commerce Department published a notice in the Federal Register on March 18, 2013, stating that the anti-dumping order will be continued for an additional five years.
Period of Review VI: On April 2, 2013, the Commerce Department published a formal notice allowing parties to request a sixth annual administrative review of the anti-dumping duty order covering the period April 1, 2012 through March 31, 2013 (“POR VI”). Requests for an administrative review were submitted to the Commerce Department in April of 2013. On June 26, 2013, the Commerce Department announced its selection of Jacobi Carbons AB and Ningxia Huahui Activated Carbon Co, Ltd. as the two mandatory respondents for POR VI. Albemarle Corporation has requested a review of Calgon Carbon (Tianjin) for POR VI. The analysis of POR VI will begin in the third quarter of 2013 and the preliminary results of the Commerce Department’s review of POR VI are anticipated to be announced in late April or early May of 2014.
Continued Dumping and Subsidy Offset Act Distributions: Pursuant to the Continued Dumping and Subsidy Offset Act (CDSOA) of 2000 (repealed effective February 8, 2006), as an affected domestic producer, the Company is eligible to apply for a share of the distributions of certain tariffs collected on imports of subject merchandise from China that entered the United States from October 11, 2006 to September 30, 2007. As a result, the Company is eligible to receive a distribution of duties collected on imports of certain activated carbon that entered the United States during a portion of POR I. In June 2013, June 2012 and July 2011, 2010, 2009 and 2008, the Company applied for such distributions which are typically made in the fourth quarter of each calendar year. There were no additional amounts received by the Company for the years ended December 31, 2011 and 2010. In November 2009 and December 2008, the Company received distributions of approximately $0.8 million and $0.2 million, respectively, which reflected 59.57% of the total amount of duties then available and distributed by Customs in connection with the anti-dumping order on certain activated carbon from China.
CDSOA distributions related to POR I imports were on hold while the POR I final results for certain exporters were under appeal. All POR I appeals were subsequently resolved and Customs issued liquidation instructions in October 2011 for activated carbon entries affected by the appeal process involving POR I. The Company received $1.8 million in December 2012 related to the CDSOA distributions of which $1.5 million was reflected within the Company’s consolidated statement of comprehensive income for the year ended December 31, 2012.
On May 31, 2013, Customs announced the preliminary amount of duties available (as of April 30, 2013) for distribution under the CDSOA for fiscal year 2013. The preliminary amount identified for distribution related to certain activated carbon imported from China totaled $86,765 which should be distributed to eligible parties in December 2013. The Company expects to receive 59.57% of the fiscal year 2013 distribution. The Company does not anticipate any further material CDSOA distributions subsequent to the distribution expected to be made in December 2013.
Big Sandy Plant
By letter dated January 22, 2007, the Company received from the United States Environmental Protection Agency (EPA) Region 4 a report of a hazardous waste facility inspection performed by the EPA and the Kentucky Department of Environmental Protection (KYDEP) as part of a Multi Media Compliance Evaluation of the Company’s Big Sandy Plant in Catlettsburg, Kentucky that was conducted on September 20 and 21, 2005. Accompanying the report was a Notice of Violation (NOV) alleging multiple violations of the Federal Resource Conservation and Recovery Act (RCRA) and corresponding EPA and KYDEP hazardous waste regulations.
The alleged violations mainly concern the hazardous waste spent activated carbon regeneration facility. The Company met with the EPA on April 17, 2007 to discuss the inspection report and alleged violations, and submitted written responses in May and June 2007. In August 2007, the EPA notified the Company that it believed there were still significant violations of RCRA that were unresolved by the information provided in the Company’s responses, without specifying the particular violations. During a meeting with the EPA on December 10, 2007, the EPA indicated that the agency would not pursue certain other alleged violations. The Company has taken action to address and remediate a number of the alleged violations. The Company now believes, and the EPA has indicated, that the number of unresolved issues as to alleged continuing violations cited in the January 22, 2007 NOV has been reduced substantially. The EPA can take formal enforcement action to require the Company to remediate any or all of the unresolved alleged continuing violations, which could require the Company to incur substantial additional costs. The EPA can also take formal enforcement action to impose substantial civil penalties with respect to violations cited in the NOV, including those which have been admitted or resolved.
By letter dated January 5, 2010, the EPA determined that certain residues resulting from the treatment of the carbon reactivation furnace off-gas are RCRA listed hazardous wastes and the material dredged from the onsite wastewater treatment lagoons were RCRA listed hazardous wastes and that they need to be managed in accordance with RCRA regulations. The Company believes that the cost to treat and/or dispose of the material dredged from the lagoons as hazardous waste could be substantial. However, by letter dated January 22, 2010, the Company received a determination from the KYDEP Division of Waste Management that the materials were not RCRA listed hazardous wastes when recycled, as had been the Company’s practice. The Company believes that pursuant to EPA regulations, KYDEP is the proper authority to make this determination. Thus, the Company believes that there is no basis for the position set forth in the EPA’s January 5, 2010 letter and the Company will vigorously defend any complaint on the matter. By letter dated May 12, 2010 from the Department of Justice Environmental and Natural Resources Division (the “DOJ”), the Company was informed that the DOJ was prepared to take appropriate enforcement action against the Company for the NOV and other violations under the
Clean Water Act (CWA). The Company met with the DOJ on July 9, 2010 and agreed to permit more comprehensive testing of the lagoons and to share data and analysis already obtained. On July 19, 2010, the EPA sent the Company a formal information request with respect to such data and analysis, which was answered by the Company. In September 2010, representatives of the EPA met with Company personnel for two days at the Big Sandy plant. The visit included an inspection by the EPA and discussion regarding the plan for additional testing of the lagoons and material dredged from the lagoons.
The Company, EPA and DOJ have had ongoing meetings and discussions since the September 2010 inspection. The Company has completed testing of some of the material dredged from the lagoons and of materials in one of the lagoons. The results of this testing have been provided to the EPA and the KYDEP. The Company believes that the results are favorable. On March 9, 2012 the KYDEP issued a determination that the material dredged from the lagoons that comes from that portion of the stockpile that has been tested; material currently in the lagoons; and future generated material, no longer contains a hazardous waste. The determination further states that KYDEP will not regulate the material as a solid waste so long as the material is managed in accordance with certain agreed upon procedures. On April 2, 2012 the EPA issued a similar determination with respect to the material dredged from the lagoons that comes from that portion of the stockpile that has been tested.
On April 11, 2012, the Company met with the EPA to attempt to negotiate a comprehensive settlement including the extent, if any, of additional testing that should be done on any of the remaining material; the long-term plans for the lagoons including possible process modifications and civil penalties. The EPA indicated that such a comprehensive resolution may be possible but that the agency still expects significant civil penalties with respect to the violations cited in the NOV as well as the alleged CWA violations. The Company believes that the size of any civil penalties, if any, should be reduced since all the alleged violations, except those with respect to the characterization of the certain residues resulting from the treatment of the carbon reactivation furnace off-gas and the material dredged from the onsite wastewater treatment lagoons, have been resolved. The Company believes that there should be no penalties associated with respect to the characterization of the residues resulting from the treatment of the carbon reactivation furnace off-gas and the material dredged from the onsite wastewater treatment lagoons as the Company believes that those materials are not RCRA listed hazardous waste as has been determined by the KYDEP and the testing has shown that the material is not hazardous.
The Company accrued $2.0 million as its estimate of potential loss related to civil penalties as of December 31, 2010. In the second quarter of 2012, the Company recorded a reduction of $0.2 million to this estimate. Since April 2012, the Company and the EPA have continued to negotiate the issues. In November 2012 the parties met and agreed in principal to a total civil penalty of $1.6 million. In July 2013 the EPA provided the Company with a draft consent decree. The Company is currently reviewing the draft consent decree and expects to sign a negotiated consent decree in 2013.
Frontier Chemical Processing Royal Avenue Site
In June 2007, the Company received a Notice Letter from the New York State Department of Environmental Conservation (NYSDEC) stating that the NYSDEC had determined that the Company is a Potentially Responsible
Party (PRP) at the Frontier Chemical Processing Royal Avenue Site in Niagara Falls, New York (the “Site”). The Notice Letter requested that the Company and other PRP’s develop, implement and finance a remedial program for Operable Unit #1 at the Site. Operable Unit #1 consists of overburden soils and overburden and upper bedrock groundwater. The Company has joined a PRP group (the “PRP Group”) and has executed a Joint Defense Agreement with the group members. The PRP Group has approximately $7.5 million in a trust account to fund remediation. In August 2008, the Company and over 100 PRP’s entered into a Consent Order with the NYSDEC for additional site investigation directed toward characterization of the Site to better define the scope of the remedial project. The Company contributed monies to the PRP Group to help fund the work required under the Consent Order. The additional site investigation required under the Consent Order was initiated in 2008 and completed in the spring of 2009. A final report of the site investigation was submitted to the NYSDEC in October 2009 and revised in September 2010. By letter dated October 10, 2010, the NYSDEC approved the report and terminated the Consent Order. The PRP Group was issued a Significant Industrial User Permit by the Niagara Falls Water Board (NFWB) in November 2010. The permit allows the shallow ground water flow from the Site to continue to be naturally captured by the adjacent sewer tunnels with subsequent treatment of the ground water at the Niagara Falls Wastewater Treatment Plant.
The PRP Group has now proposed and the NYSDEC has agreed to permit onsite thermal treatment of the contaminated soil to achieve the soil clean-up standards. Estimated costs for thermal treatment of soils are $7.5 million to $8 million. In March 2013, the Company, along with over thirty other PRPs, entered into a consent decree with the NYSDEC pursuant to which the work plan for the remedial program was agreed upon. The Company has not determined what portion of the costs associated with the remedial program it will be obligated to bear and the Company cannot predict with any certainty the outcome of this matter or range of potential loss.
Pearl River Plant
In August 2012, the Company’s Pearl River plant, located in Pearlington, Mississippi, was impacted by Hurricane Isaac. The Company has both property and business interruption insurance coverage for this plant. In January 2013, management filed a claim with its insurance carrier to recover damages for both property and business interruption related to this event. In March 2013, the Company settled its insurance claim and received $0.4 million from its insurance carrier and recorded it as a deduction to cost of products sold (excluding depreciation) for the three months ended March 31, 2013.
Accelerated Share Repurchase
In November 2012, the Company’s Board of Directors authorized an accelerated share repurchase of Company common stock under a share repurchase program (the “Program”). On November 20, 2012, the Company paid a purchase price of $50 million and received 3,276,002 shares in connection with the inception of the Program. The actual number of shares that the Company will repurchase under the Program will be determined based on a discount to the arithmetic mean of the volume-weighted average prices (VWAP) of the Company’s common stock for each observation date over the course of applicable calculation periods. The calculation period is expected to end no later than the end of September 2013. If the actual number of shares to be repurchased exceeds the number of shares previously delivered, the Company will receive a number of additional shares equal to such excess
following the conclusion of the calculation period. If the actual number of shares to be repurchased is less than the number of shares previously delivered, the Company will deliver shares equal to such excess following the conclusion of the calculation period. The Company also retains the right to settle any such deficit in cash. The Company’s outstanding common shares used to calculate earnings per share will be reduced by the number of repurchased shares pursuant to the Program as they are delivered to the Company, and the $50 million purchase price was recorded as a reduction in stockholders’ equity upon its payment. Based on the Company’s VWAP from Program inception through June 30, 2013, the number of shares to be repurchased is estimated to be 236,284 shares less than the shares that were previously delivered. Accordingly, the Company has increased its diluted shares outstanding.
Other
In addition to the matters described above, the Company is involved in various other 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 when it is probable that a liability has been incurred and the loss amount is reasonably estimable. Management believes that the ultimate liabilities, if any, resulting from such lawsuits and claims will not materially affect the consolidated financial position or liquidity of the Company, but an adverse outcome could be material to the results of operations in a particular period in which a liability is recognized.
9. Goodwill & Other Identifiable Intangible Assets
The Company has elected to perform the annual impairment test of its goodwill, as required, on December 31 of each year. For purposes of the test, the Company has identified reporting units, as defined within ASC 350, “Intangibles — Goodwill and Other,” at a regional level for the Activated Carbon and Service segment and at the technology level for the Equipment segment and has allocated goodwill to these reporting units accordingly. The goodwill associated with the Consumer segment is not material and has not been allocated below the segment level.
The changes in the carrying amounts of goodwill by segment for the six months ended June 30, 2013 are as follows:
|
|
|
Activated |
|
|
|
|
|
|
| ||||
|
|
|
Carbon & |
|
|
|
|
|
|
| ||||
|
|
|
Service |
|
Equipment |
|
Consumer |
|
|
| ||||
|
|
|
Segment |
|
Segment |
|
Segment |
|
Total |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance as of December 31, 2012 |
|
$ |
20,310 |
|
$ |
6,660 |
|
$ |
60 |
|
$ |
27,030 |
|
|
Restructuring (Note 1) |
|
(419 |
) |
— |
|
— |
|
(419 |
) | ||||
|
Foreign exchange |
|
(192 |
) |
(89 |
) |
— |
|
(281 |
) | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Balance as of June 30, 2013 |
|
$ |
19,699 |
|
$ |
6,571 |
|
$ |
60 |
|
$ |
26,330 |
|
The following is a summary of the Company’s identifiable intangible assets as of June 30, 2013 and December 31, 2012, respectively:
|
|
|
|
|
June 30, 2013 |
| ||||||||||
|
|
|
Weighted Average |
|
Gross Carrying |
|
Foreign |
|
Accumulated |
|
Net Carrying |
| ||||
|
|
|
Amortization Period |
|
Amount |
|
Exchange |
|
Amortization |
|
Amount |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amortized Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Patents |
|
20.0 Years |
|
$ |
676 |
|
$ |
— |
|
$ |
(570 |
) |
$ |
106 |
|
|
Customer Relationships |
|
15.9 Years |
|
10,450 |
|
(254 |
) |
(8,548 |
) |
1,648 |
| ||||
|
Product Certification |
|
5.4 Years |
|
7,905 |
|
(25 |
) |
(4,590 |
) |
3,290 |
| ||||
|
Unpatented Technology |
|
18.4 Years |
|
3,183 |
|
— |
|
(2,325 |
) |
858 |
| ||||
|
Licenses |
|
20.0 Years |
|
964 |
|
8 |
|
(204 |
) |
768 |
| ||||
|
Total |
|
12.9 Years |
|
$ |
23,178 |
|
$ |
(271 |
) |
$ |
(16,237 |
) |
$ |
6,670 |
|
|
|
|
|
|
December 31, 2012 |
| ||||||||||
|
|
|
Weighted Average |
|
Gross Carrying |
|
Foreign |
|
Accumulated |
|
Net Carrying |
| ||||
|
|
|
Amortization Period |
|
Amount |
|
Exchange |
|
Amortization |
|
Amount |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Amortized Intangible Assets: |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Patents |
|
20.0 Years |
|
$ |
676 |
|
$ |
— |
|
$ |
(548 |
) |
$ |
128 |
|
|
Customer Relationships |
|
15.9 Years |
|
10,450 |
|
(223 |
) |
(8,311 |
) |
1,916 |
| ||||
|
Product Certification |
|
5.4 Years |
|
7,369 |
|
(3 |
) |
(3,917 |
) |
3,449 |
| ||||
|
Unpatented Technology |
|
18.4 Years |
|
3,183 |
|
— |
|
(2,191 |
) |
992 |
| ||||
|
Licenses |
|
20.0 Years |
|
964 |
|
119 |
|
(180 |
) |
903 |
| ||||
|
Total |
|
13.1 Years |
|
$ |
22,642 |
|
$ |
(107 |
) |
$ |
(15,147 |
) |
$ |
7,388 |
|
For the three and six months ended June 30, 2013, the Company recognized $0.6 million and $1.1 million, respectively, of amortization expense related to intangible assets. For the three and six months ended June 30, 2012, the Company recognized $0.5 million and $0.9 million, respectively, of amortization expense related to intangible assets. As of June 30, 2013, estimated future amortization expense of identifiable intangible assets is $1.1 million for the remaining six months of 2013. The Company estimates amortization expense to be recognized during the next five years as follows:
|
For the year ending December 31: |
|
|
| |
|
2014 |
|
$ |
1,990 |
|
|
2015 |
|
1,393 |
| |
|
2016 |
|
1,114 |
| |
|
2017 |
|
337 |
| |
|
2018 |
|
138 |
| |
10. Borrowing Arrangements
Short-Term Debt
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
Borrowings under Japanese Working Capital Loan |
|
$ |
— |
|
$ |
18,611 |
|
|
Borrowings under China Credit Facility |
|
61 |
|
— |
| ||
|
Borrowings under Japanese Term Loan |
|
— |
|
954 |
| ||
|
Total |
|
$ |
61 |
|
$ |
19,565 |
|
Long-Term Debt
|
|
|
June 30, |
|
December 31, |
| ||
|
|
|
2013 |
|
2012 |
| ||
|
U.S. Credit Facility Borrowings |
|
$ |
45,700 |
|
$ |
44,250 |
|
|
Borrowings under Japanese Term Loan |
|
10,193 |
|
— |
| ||
|
Belgian Loan Borrowings |
|
156 |
|
158 |
| ||
|
Total |
|
$ |
56,049 |
|
$ |
44,408 |
|
U.S. Credit Facility
The Company’s U.S. Credit Facility (Credit Facility), which expires on November 17, 2016, contains a revolving credit capacity of $125.0 million with a $30.0 million sublimit for the issuance of letters of credit. So long as no event of default has occurred and is continuing, the Company from time to time may request one or more increases in the total revolving credit commitment under the Credit Facility of up to $50.0 million in the aggregate. No assurance can be given, however, that the total revolving credit commitment will be increased above $125.0 million.
Availability under the Credit Facility is dependent upon various customary conditions. A quarterly nonrefundable commitment fee is payable by the Company based on the unused availability under the Amended Credit Agreement and is currently equal to 0.25%. Total availability under the Credit Facility at June 30, 2013 and December 31, 2012 was $77.1 million and $78.6 million, respectively, after considering outstanding letters of credit and borrowings.
The interest rate on amounts owed under the Credit Facility will be, at the Company’s option, either (i) a fluctuating base rate based on the highest of (A) the prime rate announced from time to time by the lenders, (B) the rate announced by the Federal Reserve Bank of New York on that day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day plus 3.00% or (C) a daily LIBOR rate plus 2.75%, or (ii) LIBOR-based borrowings in one, two, three, or six month increments at the applicable LIBOR rate plus 1.25%. A margin may be added to the applicable interest rate based on the Company’s leverage ratio. The interest rate per annum on outstanding borrowings as of June 30, 2013 ranged from 1.25% to 1.45%.
Total outstanding borrowings under the Credit Facility were $45.7 million and $44.3 million as of June 30, 2013 and December 31, 2012, respectively, and are shown as long-term debt within the condensed consolidated balance sheets. The borrowings and repayments are presented on a gross basis within the Company’s condensed consolidated statements of cash flows.
The Credit Facility contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to indebtedness, liens, guaranties, loans
and investments, dividends, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Company must comply with certain financial covenants including a minimum interest coverage ratio, maximum leverage ratio, and minimum net worth, as defined within the Credit Facility. The Credit Facility also provides for customary events of default, including failure to pay principal or interest when due, failure to comply with covenants, the fact that any representation or warranty made by the Company is false or misleading in any material respect, certain insolvency or receivership events affecting the Company and its subsidiaries and a change in control of the Company. If an event of default occurs, the lenders will be under no further obligation to make loans or issue letters of credit. Upon the occurrence of certain events of default, all outstanding obligations of the Company automatically become immediately due and payable, and other events of default will allow the lenders to declare all or any portion of the outstanding obligations of the Company to be immediately due and payable.
Belgian Loan and Credit Facility
On November 30, 2009, the Company entered into a Loan Agreement (the “Belgian Loan”) in order to help finance the expansion of the Company’s Feluy, Belgium facility. The Belgian Loan provided total borrowings up to 6.0 million Euros, which could be drawn on in 120 thousand Euro bond installments at 25% of the total amount invested in the expansion until December 31, 2011. Bond options not called by December 31, 2011 were obsolete and the loan was limited to the amount actually called by that date. The maturity date is seven years from the date of the first draw down which occurred on April 13, 2011 and the interest rate is 5.35%. The Belgian Loan is guaranteed by a mortgage mandate on the Feluy site and is subject to customary reporting requirements, though no financial covenants exist. The Company had 120 thousand Euros, or $0.2 million, of outstanding borrowings under the Belgian Loan as of June 30, 2013 and December 31, 2012, respectively. No further bonds can be called on.
The Company also maintains an unsecured Belgian credit facility totaling 2.0 million Euros. There are no financial covenants and the Company had no outstanding borrowings under the Belgian credit facility as of June 30, 2013 and December 31, 2012, respectively. Bank guarantees of 1.0 million Euros and 1.2 million Euros were issued as of June 30, 2013 and December 31, 2012, respectively.
United Kingdom Credit Facility
The Company maintains a United Kingdom credit facility for the issuance of various letters of credit and guarantees totaling 0.6 million British Pounds Sterling. Bank guarantees of 0.4 million British Pounds Sterling were issued as of June 30, 2013 and December 31, 2012, respectively.
Japanese Loans
Calgon Carbon Japan (CCJ) maintains a Term Loan Agreement (the “Japanese Term Loan”) and a Working Capital Loan Agreement (the “Japanese Working Capital Loan”). The Company is jointly and severally liable as the guarantor of CCJ’s obligations and the Company permitted CCJ to grant a security interest and continuing lien in certain of its assets, including inventory and accounts receivable, to secure its obligations under both loan agreements.
The Japanese Term Loan provided for a principal amount of 722.0 million Japanese Yen, or $7.7 million at inception. This loan matured on March 31, 2013 and was repaid. At December 31, 2012, CCJ had 82.0 million Japanese Yen or $1.0 million outstanding and recorded as short-term debt within the condensed consolidated balance sheet. CCJ signed an agreement on May 10, 2013 to renew the Japanese Term Loan, which provides for borrowings up to 1.0 billion Japanese Yen, and bears interest based on the Uncollateralized Overnight Call Rate, which was 0.7% per annum at June 30, 2013. This loan matures on May 10, 2017. At June 30, 2013, CCJ had 1.0 billion Japanese Yen or $10.2 million outstanding and recorded as long-term debt within the condensed consolidated balance sheet.
The Japanese Working Capital Loan provides for borrowings up to 1.5 billion Japanese Yen, and bears interest based on the Short-term Prime Rate, which was 1.475% per annum at June 30, 2013. This loan matured on March 31, 2013 and was renewed until March 31, 2014. Borrowings and repayments under the Japanese Working Capital Loan have generally occurred in short term intervals, as needed, in order to ensure adequate liquidity while minimizing outstanding borrowings. The borrowings and repayments are presented on a gross basis within the Company’s condensed consolidated statements of cash flows. There were no outstanding borrowings under the Japanese Working Capital Loan as of June 30, 2013. At December 31, 2012, CCJ had 1.6 billion Japanese Yen or $18.6 million outstanding and recorded as short-term debt within the condensed consolidated balance sheet.
China Credit Facility
The Company maintains an unsecured Chinese credit facility for working capital requirements totaling 10.0 million Renminbi (“RMB”) or $1.6 million that matured on July 19, 2013 and was renewed until July 19, 2014. The interest rate per annum on outstanding borrowings as of June 30, 2013 was 5.32%. Total outstanding borrowings under this facility were 0.4 million RMB, or $0.1 million at June 30, 2013 and are shown as short-term debt within the condensed consolidated balance sheet. There were no borrowings under this facility at December 31, 2012.
Maturities of Debt
The Company is obligated to make principal payments on debt outstanding at June 30, 2013 of $0.1 million in 2013, $45.7 million in 2016, $10.1 million in 2017, and $0.2 million in 2018.
11. Pensions
U.S. Plans:
For U.S. plans, the following table provides the components of net periodic pension costs of the plans for the three and six months ended June 30, 2013 and 2012:
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
| ||||||||
|
Pension Benefits (in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Service cost |
|
$ |
292 |
|
$ |
265 |
|
$ |
583 |
|
$ |
530 |
|
|
Interest cost |
|
1,127 |
|
1,164 |
|
2,254 |
|
2,380 |
| ||||
|
Expected return on plan assets |
|
(1,667 |
) |
(1,522 |
) |
(3,334 |
) |
(3,081 |
) | ||||
|
Amortization of prior service cost |
|
19 |
|
(6 |
) |
38 |
|
13 |
| ||||
|
Net actuarial loss amortization |
|
909 |
|
876 |
|
1,818 |
|
1,710 |
| ||||
|
Net periodic pension cost |
|
$ |
680 |
|
$ |
777 |
|
$ |
1,359 |
|
$ |
1,552 |
|
The expected long-term rate of return on plan assets is 7.75% in 2013.
Employer Contributions
In its 2012 financial statements, the Company disclosed that it expected to contribute $1.3 million to its U.S. pension plans in 2013. As of June 30, 2013, the Company made contributions of $0.5 million. The Company expects to contribute the remaining $0.8 million over the balance of the year.
European Plans:
For European plans, the following table provides the components of net periodic pension costs of the plans for the three and six months ended June 30, 2013 and 2012:
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
| ||||||||
|
Pension Benefits (in thousands) |
|
2013 |
|
2012 |
|
2013 |
|
2012 |
| ||||
|
Service cost |
|
$ |
79 |
|
$ |
42 |
|
$ |
157 |
|
$ |
84 |
|
|
Interest cost |
|
382 |
|
439 |
|
756 |
|
878 |
| ||||
|
Expected return on plan assets |
|
(394 |
) |
(325 |
) |
( | |||||||