Calgon Carbon Corporation

Background and Basic Overview

Calgon Carbon Corporation was founded in 1942 and is located in Pittsburg

Pennsylvania. They are classified as a commodity chemicals company. Their revenue mainly

comes from purifying air and water by removing contaminants and odors through various

chemical processes. Calgon Carbon’s operations are primarily in the United States but they

have a presence in Europe and eastern Asia. In 2008, 55% of their revenue came from the US

but the rest came from a wide variety of countries as is illustrated in the chart below.

2008 Sales by location

Mexico
1%
Spain Other
2% 14%
Netherlands
2%
China
2%
Japan
3% United States
Belgium 55%
3%
France
4%
Germany
4%
Canada
4%
United Kingdom
6%

Calgon Carbon has 16 carbon manufacturing facilities and 21 sales and service centers.

They divide their operations between different segments. Its activated carbon segment is the

largest where they generate the majority of their revenue. They are the largest producer of

activated carbon in the world. Activated carbon binds with toxins that exist in a gas or liquid
and in that way is able to flush them out. There are many uses for activated carbon including

spill cleanup, air purification and water filtration. Disposing toxin laden carbon can present a

difficulty for producers because Federal Regulations prevent it from being disposed normally if

the mercury level is too high. Some processes allow them to burn off the toxins and reuse the

carbon but when they deal with mercury it can become a costly process to dispose the waste.

Calgon Carbon has had some problems in the past with pollution. This will likely remain a major

concern for them in the future as well. Their Engineered Systems segments design and build

carbon absorption systems. 20 years ago, they developed Ultraviolet light technologies which

through the oxidation process were able to remediate contaminated groundwater. More

recently in 1998 they introduced their Sentinel line for purifying drinking water. They are a

leader in the marketplace with innovative ultraviolet technologies. In addition to Sentinel®,

they have their C3 tm series for wastewater and Rayox® line for groundwater.

Spare parts Home consumer products Other services

Carbon cloth products 2% 1% 2%
3%
Equipment leasing
4%
Capital equipment
9%

Carbon products
79%
Industry Outlook
The commodity chemicals industry is greatly affected by the price of commodities.

Because Activated carbon is generally developed from wood or coal, a rise in the price of these

commodities, particularly coal, could negatively affect earnings. Calgon Carbon has sought to

protect themselves against negative supply shocks by using hedges to ensure that they will

have the supplies they need in the future. As populations become more urban there will be

more demand for products that more effectively clean up air and water. Calgon Carbon has a

history of innovation and will be able to capitalize from higher demand.

Competitors and Positioning

Calgon Carbon has worked to establish themselves as an industry leader in activated

carbon. Currently there is a tariff in the United States on Chinese activated carbon. This helps

in sustaining a decent level of profit for American producers of activated carbon. In 2008,

Calgon Carbon was fully utilizing its resources and looking toward expansion. They pumped $35

million investments into expanding efficiency and capacity. In 2009 they planned to invest

another $60 million to take advantage of opportunities that they see in the industry. This is a

sizable amount for a company that only had a net income of $38.3 million in 2008. They were

able to clean out much of their debt by converting senior notes for cash and common stock.

They are primed to expand in an industry where they believe they have a competitive

advantage due to their patents and superior research and development team. They have a

history of innovation by producing a long string of successful products.

Stock Analysis
 Calgon Carbon is a relatively small company with a market cap of only $857 million.

They have a beta of .91 indicating that they are slightly less volatile than the market. Currently

their stock is priced at $15.12 which is closer to the high end of their 52 week range of $9.11 to

$19.31. Over the past several years the earnings per share and revenue have been trending up

although the earnings per share are quite a bit more volatile.

Quarterly Earnings per share Quarterly Revenue (millions)

0.4 120
100
0.2 80
60

0 EPS 40
20
0
06 06 07 07 08 08 09
20 20 20 20 20 20 20
1Q 3Q 1Q 3Q 1Q 3Q 1Q
Revenue

$400 Balance sheet

Numbers in millions
$350

$300

$250
Total Assets
$200
Equity
$150 Long-term debt

$100

$50

$0
2001 2002 2003 2004 2005 2006 2007 2008

Over the past three years Calgon has improved their balance sheet greatly by

eliminating $77 million in long-term debt. Their total assets have remained in a fairly steady
range over the past decade since most of it is property and equipment that they own. In the

coming years they plan to increase their capacity to produce so they may pick up some more

debt to finance more assets. Their cleaned up balance sheet has given them the flexibility to

expand more.