================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File Number: 0-15661
AMCOL INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-0724340
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One North Arlington, 60004-7803
1500 West Shure Drive, Suite 500 (Zip Code)
Arlington Heights, Illinois
(Address of principal executive offices)
Registrant's telephone number, including area code: (847) 394-8730
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock
(Title of Class)
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 .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. x
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Act).
Yes x No .
----- -----
The aggregate market value of the registrant's $.01 par value Common Stock
held by non-affiliates of the registrant (based upon the per share closing price
of $6.85 per share on June 28, 2002, and, for the purpose of this calculation
only, the assumption that all of the registrant's directors and executive
officers are affiliates) was approximately $143.4 million.
Registrant had 28,052,120 shares of $.01 par value Common Stock
outstanding as of February 28, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be dated on or before April 1, 2003
are incorporated by reference into Part III hereof.
================================================================================
PART I
Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South
Dakota in 1924 as the Bentonite Mining & Manufacturing Company. Its name was
changed to American Colloid Company in 1927, and in 1959, the Company was
reincorporated in Delaware. In 1995, its name was changed to AMCOL International
Corporation. Except as otherwise noted, or indicated by context, the term
"Company" refers to AMCOL International Corporation and its subsidiaries.
The Company operates in two major industry segments: minerals and
environmental. The Company also operates a transportation business. The minerals
segment mines, processes and distributes clays and products with similar
applications to various industrial and consumer markets. The environmental
segment processes and distributes clays and products with similar applications
for use as a moisture barrier in commercial construction, landfill liners and in
a variety of other industrial and commercial applications. The transportation
segment includes a long-haul trucking business and a freight brokerage business,
which provide services to both the Company's plants and outside customers.
The following table sets forth the percentage contributions to net
sales of the Company attributable to its minerals, environmental and
transportation segments for the last three calendar years. The percentages
include intersegment shipping revenues.
- --------------------------------------------------------------------------------
Percentage of Sales
----------------------------------
2002 2001 2000
---- ---- ----
Minerals 55% 52% 55%
Environmental 34% 36% 33%
Transportation 11% 12% 12%
---- ---- ----
100% 100% 100%
==== ==== ====
- --------------------------------------------------------------------------------
Net revenues, operating profit, assets, depreciation, depletion and
amortization, capital expenditures and research and development expenditures
attributable to each of the Company's business segments are set forth in Note 3
of the Company's Notes to Consolidated Financial Statements included elsewhere
herein.
DISCONTINUED OPERATIONS
In 2001, the Company sold its U.K. metalcasting business to a group
comprised in part of former management of the business. Included in the sale
were machinery and equipment. The acquirer entered into a license agreement for
the right to use trademarks for a period of ten years, and will lease land and
buildings from the Company. The Company did not receive any proceeds from the
sale. The U.K. metalcasting business was a component entity of the Company's
minerals segment.
In 2000, the Company closed its U.K. cat litter business. Certain
assets were sold to various outside parties for $.7 million. The closure was
completed in 2001.
In 2000, the Company sold its absorbent polymers business to BASF
Aktiengesellschaft ("BASF") under the terms of an Asset and Stock Purchase
Agreement dated November 22, 1999 (the "Purchase Agreement"), as amended. The
Purchase Agreement provided for the transfer to BASF of the following: (i) all
of the shares of capital stock of the Company's indirect subsidiaries: Chemdal
Corporation and Chemdal Asia Ltd.; and (ii) all other assets of the Company and
its designated subsidiaries related primarily to the absorbent polymers
business. The total consideration paid to the Company by BASF was $656.5
million. The sale was approved by the Company's shareholders in May 2000 and the
transaction closed on June 1, 2000.
2
The Company adopted a plan of partial liquidation in connection with
the sale of the absorbent polymers business pursuant to which the Company
distributed $14.00 per share to its shareholders, which represented a
significant portion of the net proceeds from the sale, on June 30, 2000.
MINERALS
The Company's minerals business is principally conducted through its
wholly owned subsidiaries, American Colloid Company in the United States and
Canada, Colin Stewart Minchem Limited in the United Kingdom, Volclay Siam Ltd.
in Thailand, Volclay Korea Ltd. in South Korea, Volclay Pty., Ltd. in Australia,
and through its joint venture companies, Volclay de Mexico in Mexico, Ashapura
Volclay Ltd. in India, Egypt Mining & Drilling Chemicals Co. in Egypt, Volclay
DongMing Industrial Minerals Co. in China and a 19% equity interest in Nissho
Iwai Bentonite Company in Japan. The Company also has a 20% equity interest in
Ashapura Minechem Ltd., a publicly traded Indian bentonite producer.
Commercially produced bentonite is a type of montmorillonite clay found
in beds ranging in thickness from two to 50 feet under overburden of up to 60
feet. There are two basic types of bentonite, each having different chemical and
physical properties. These are commonly known as sodium bentonite and calcium
bentonite. Sodium bentonite is generally referred to as western bentonite
because it predominately occurs in the Western United States. Sodium bentonites
of lesser purity occur outside the United States. Calcium bentonite is generally
referred to as southern bentonite in the United States and as fuller's earth
outside the United States. Calcium bentonites mined outside the United States
are commonly activated with sodium carbonate to produce properties similar to
natural sodium bentonite.
The Company's principal bentonite products are marketed under various
internationally registered trade names, including VOLCLAY(R), PANTHER CREEK(R),
PREMIUM GEL(R) and ADDITROL(R). The Company's cat litter is sold under various
trade names and private labels. Trade names include NATURAL SELECT(R), CAREFREE
KITTY(R), PREMIUM CHOICE(R), CAT TAILS(R), CATS PAW(R) and PAMPER CAT(R).
Principal Products and Markets
Durable Goods
Metalcasting. In the formation of sand molds for metal castings, sand
is bonded with bentonite and various other additives to yield desired casting
form and surface finish. The Company produces blended mineral binders containing
sodium and calcium bentonite, sold under the trade name ADDITROL(R). In
addition, several high-performance specialty products are sold to foundries and
companies that service foundries.
Iron Ore Pelletizing. The Company supplies sodium bentonite for use as
a pelletizing aid in the production of taconite pellets in North America.
Well Drilling. Sodium bentonite and leonardite, a form of oxidized
lignite mined and processed by the Company in North Dakota, are components of
drilling fluids used in oil and gas well drilling. Bentonite imparts thickening
and suspension properties, which facilitate the transport of rock cuttings to
the surface during the drilling process. Drilling fluids lubricate the drilling
bit and coat the underground formations to prevent hole collapse and drill bit
seizing. The Company's primary trademark for this application is PREMIUM GEL(R).
Other Industrial. The Company produces bentonite and bentonite blends
for the construction industry, which are used as a plasticizing agent in cement,
plaster and bricks, and as an emulsifier in asphalt.
Consumable Goods
Cat Litter. The Company produces and markets a sodium bentonite-based,
scoopable (clumping) cat litter. The Company markets a traditional cat litter to
complement its line of scoopable cat litter products to the pet trade sector of
the
3
market. The Company's scoopable products' clump-forming capability traps urine,
allowing for easy removal of the odor-producing elements from the litter box.
The scoopable cat litter products are sold primarily to private label grocery
and mass merchandisers, though the Company also sells its own brands to the
grocery, pet store and mass markets. The Company's products are marketed under
various trade names.
Specialty Minerals. The Company supplies high-grade agglomerated
bentonite to the detergent industry. Purified grades of sodium bentonite are
marketed to the pharmaceutical and cosmetics industries. Small amounts of
purified bentonite act as a binding agent for pharmaceutical tablets, and
bentonite's swelling property aids in tablet disintegration. Bentonite also acts
as a thickening and suspension agent in lotions. Specialized uses of bentonite
and other clays include flow control additives, beverage clarification and
desiccants.
Agricultural. Sodium bentonite and calcium bentonites are sold as
pelletizing aids in livestock feed and as anticaking agents for livestock feed
in storage or during transit.
Sales and Distribution
In 2002, the top five customers of the minerals segment were located in
North America and accounted for approximately 31% of the segment sales
worldwide.
The Company has established industry-specialized sales groups staffed
with technically oriented salespersons serving each of the Company's major
markets. Certain groups have networks of distributors and representatives,
including companies that warehouse products at strategic locations.
Most customers in the metalcasting industry are served on a direct
basis by teams of Company sales, technical and manufacturing personnel. The
Company also provides training courses and laboratory testing for customers who
use the Company's products in the metalcasting process.
Sales to the oil and gas well drilling industry are primarily made
directly to oil and gas well drilling fluid service companies, both under the
Company's trade name and under private label. Because bentonite is a major
component of drilling fluids, two service companies have captive bentonite
operations. The Company's potential market, therefore, generally is limited to
those service organizations that are not vertically integrated, or do not have
long-term supply arrangements with other bentonite producers.
Sales to the cat litter market are made on a direct basis and through
industry brokers. All sales to the iron ore pelletizing industry are made
directly to the end user. Sales to the Company's remaining markets are made
primarily through independent distributors and representatives.
Competition
The Company is one of the largest producers of bentonite products
globally. There are at least four other major North American producers of sodium
bentonite and at least one other major domestic producer of calcium bentonite.
Two of the North American producers are companies primarily in other lines of
business with substantially greater financial resources than the Company. There
is also substantial global competition. The Company's bentonite operations
outside North America compete with more than ten other bentonite producers.
Competition, in both the Company's domestic and international markets, is
essentially a matter of product quality, price, logistics, service and technical
support.
Seasonality
Although business activities in certain of the industries in which the
Company's mineral products are sold, e.g. oil and gas well drilling and
construction, are subject to factors such as weather, the Company does not
consider its minerals business, as a whole, to be seasonal.
4
ENVIRONMENTAL
Principal Products and Markets
Through its wholly owned subsidiaries, Colloid Environmental
Technologies Company (CETCO) in the United States and Canada, CETCO Korea Ltd.,
CETCO Poland Sp. z o.o. and CETCO (Europe) Ltd. in the United Kingdom, the
Company sells sodium bentonite, products containing sodium bentonite, and other
products, services, and equipment for use in environmental and construction
applications.
CETCO sells bentonite and its geosynthetic clay liner products under
the BENTOMAT(R) and CLAYMAX(R) trade names for lining and capping landfills and
for containment in tank farms, leach pads, waste stabilization lagoons, slurry
walls and wetlands reclamation applications.
The Company's VOLCLAY(R) Waterproofing System is sold to the
non-residential construction industry. This line includes VOLTEX(R), a
waterproofing composite comprised of two polypropylene geotextiles filled with
sodium bentonite. VOLTEX(R) is installed to prevent leakage through underground
foundation walls and slabs. The following products round out the principal
components of the product line: VOLCLAY PANELS(R), also used for below-grade
waterproofing of walls and slabs; WATERSTOP-RX(R), a joint sealant product; and
VOLCLAY SWELLTITE(R), a waterproofing membrane for concrete split slabs and
plaza areas.
Bentonite-based flocculants and customized equipment are used to remove
emulsified oils and heavy metals from wastewater. Bentonite-based products are
formulated to solidify liquid waste for proper disposal in landfills. These
products are sold primarily under the SYSTEM-AC(R), RM-10(R) and SORBOND(R)
trade names.
CETCO's environmental offshore services group employs CRUDESORB(R) and
CRUDESEP(R) filtration technology, used primarily on offshore oil production
platforms. CETCO employs several technologies to allow platform operators to
maintain compliance with regulatory requirements governing discharge of waste
generated during oil production. CETCO's filtration technology is marketed with
all necessary equipment, proprietary filter media and trained professional
service personnel. The Company is also actively involved in providing wastewater
treatment solutions to pipeline operators to enable them to meet wastewater
discharge requirements.
CETCO's drilling products are used in environmental and geotechnical
drilling applications, horizontal directional drilling and mineral exploration.
The products are used to install monitoring wells, facilitate horizontal
drilling and water wells, rehabilitate existing water wells and seal abandoned
exploration drill holes. VOLCLAY(R) GROUT, HYDRAUL-EZ(R), BENTOGROUT(R) and
VOLCLAY(R) TABLETS are among the trade names for products used in these
applications. Geothermal grouting applications utilizing GEOTHERMAL GROUT(TM)
represent a new market area for CETCO drilling products.
Competition
CETCO has three principal competitors in the geosynthetic clay liner
market. The construction and wastewater treatment product lines are specialized
businesses that compete primarily with alternative technologies. The groundwater
monitoring, well drilling and sealants products compete with the Company's
traditional rivals in the sodium bentonite business. The environmental offshore
services group competes with several larger oil services companies using
different technology. Competition is based on product quality, service, price,
technical support and availability of product. Historically, the competition has
been vigorous.
Sales and Distribution
CETCO products are sold domestically and internationally. CETCO sells
most of its products through independent distributors and commissioned
representatives. CETCO employs technically oriented marketing personnel to
support its network of distributors and representatives. Offshore customers are
primarily major oil companies to which products are sold on a direct basis.
5
Seasonality
Much of the business in the environmental sector is impacted by weather
and soil conditions. Many of the products cannot be applied in harsh weather
conditions and, as such, sales and profits tend to be stronger during the period
from April through October. As a result, the Company considers this segment to
be seasonal.
MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS
Mineral Reserves
The Company has reserves of sodium and calcium bentonite at various
locations throughout North America including Wyoming, South Dakota, Montana and
Alabama. The Company, indirectly through its joint venture companies, has access
to bentonite deposits in China, Egypt, India and Mexico. At 2002 consumption
rates and product mix, the Company estimates its proven reserves of commercially
usable sodium bentonite at approximately 25 years. The Company estimates its
proven reserves of calcium bentonite at 18 years. While the Company, based upon
its experience, believes that its reserve estimates are reasonable and its title
and mining rights to its reserves are valid, the Company has not obtained any
independent verification of such reserve estimates or such title or mining
rights. The Company owns or controls the properties on which its reserves are
located through long-term leases, royalty agreements and patented and unpatented
mining claims. A majority of the Company's bentonite reserves are owned. All of
the properties on which the Company's reserves are located are either physically
accessible for the purposes of mining and hauling, or the cost of obtaining
physical access would not be material.
To retain possessory rights in unpatented mining claims, a fee of $100
per year for each unpatented mining claim is required. The validity of title to
unpatented mining claims is dependent upon numerous factual matters. The Company
believes that the unpatented mining claims that it owns have been located in
compliance with all applicable federal, state and local mining laws, rules and
regulations. The Company is not aware of any material conflicts with other
parties concerning its claims. From time to time, members of Congress and
members of the executive branch of the federal government have proposed
amendments to existing federal mining laws. The various amendments would have
had a prospective effect on mining operations on federal lands and include,
among other things, the imposition of royalty fees on the mining of unpatented
claims, the elimination or restructuring of the patent system and an increase in
fees for the maintenance of unpatented claims. To the extent that future
proposals may result in the imposition of royalty fees on unpatented lands, the
mining of the Company's unpatented claims may become uneconomic, and royalty
rates for privately leased lands may be affected. The Company cannot predict the
form that any amendments might ultimately take or whether or when any such
amendments might be adopted.
The Company maintains a continuous program of worldwide exploration for
additional reserves and attempts to acquire reserves sufficient to replenish its
consumption each year, but it cannot assure that additional reserves will
continue to become available.
The Company oversees all of its mining operations, including its
exploration activity and securing the necessary state and federal mining
permits.
6
The following table shows a summary of minerals sold by the Company
from active mining areas for the last three years in short tons, as well as
mineral reserves by major mineral category:
Tons Sold Mining Claims
------------------------- ----------------------------
All amounts are in Wet Tons Assigned Unassigned Conversion Unpatented
thousands of tons 2002 2001 2000 of Reserves Reserves Reserves Factor Owned ** Leased
- -----------------------------------------------------------------------------------------------------------------------------------
Sodium Bentonite
Assigned
- -----------------------------------------------------------------------------------------------------------------------------------
Belle/Colony, SD 941 876 1,003 20,824 20,824 -- 77.31% 660 374 19,790
- -----------------------------------------------------------------------------------------------------------------------------------
Lovell, WY 379 382 226 25,506 25,506 -- 77.31% 15,182 9,882 442
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSIGNED 1,320 1,258 1,229 46,330 46,330 -- 15,842 10,256 20,232
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Other / Unassigned
(SD, WY, MT, NV) 62 152 144 66,068 38 66,030 77.31% 55,450 4,154 6,464
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER / UNASSIGNED 62 152 144 66,068 38 66,030 55,450 4,154 6,464
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL SODIUM BENTONITE 1,381 1,410 1,373 112,398 46,368 66,030 71,292 14,410 26,696
41% 59% 63% 13% 24%
- -----------------------------------------------------------------------------------------------------------------------------------
Calcium Bentonite
Assigned
- -----------------------------------------------------------------------------------------------------------------------------------
Sandy Ridge, AL 138 145 193 3,475 3,475 -- 72.70% 1,583 -- 1,892
- -----------------------------------------------------------------------------------------------------------------------------------
Chao Yang, Liaoning,
China 31 -- -- 741 741 -- 71.00% -- -- 741
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSIGNED 169 145 193 4,216 4,216 -- 1,583 -- 2,633
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Other / Unassigned -- -- -- 115 -- 115 77.31% -- -- 115
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER / UNASSIGNED -- -- -- 115 -- 115 -- -- 115
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL CALCIUM BENTONITE 169 145 193 4,331 4,216 115 1,583 -- 2,748
97% 3% 37% 63%
- -----------------------------------------------------------------------------------------------------------------------------------
Leonardite
- -----------------------------------------------------------------------------------------------------------------------------------
Gascoyne, SD 25 25 26 643 643 -- 62.57% -- -- 643
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LEONARDITE 25 25 26 643 643 -- -- -- 643
100% 100%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
GRAND TOTALS 1,575 1,580 1,592 117,372 51,227 66,145 72,875 14,410 30,087
44% 56% 62% 12% 26%
- -----------------------------------------------------------------------------------------------------------------------------------
** Quantity of reserves that would be owned if patent was granted.
Assigned reserves means reserves which could be reasonably expected to
be processed in existing plants. Unassigned reserves means reserves which will
require additional expenditures for processing facilities. Conversion factor
means the percentage of reserves that will be available for sale after
processing.
The Company estimates that available supplies of other materials
utilized in its minerals business are sufficient to meet its production
requirements for the foreseeable future.
Mining and Processing
Bentonite is surface-mined, generally with large earthmoving scrapers,
and then loaded into trucks and off-highway haul wagons for movement to
processing plants. The mining and hauling of the Company's clay is done both by
the Company and by independent contractors. Each of the Company's bentonite
processing plants generally maintains stockpiles of unprocessed clay equaling
approximately four to eight months' production requirements.
At the processing plants, bentonite is dried, crushed and sent through
grinding mills, where it is sized into shipping form, then chemically modified
where needed and transferred to silos for automatic bagging or bulk shipment.
Virtually all production is shipped as processed, rather than stored for
inventory.
7
Product Development and Patents
The Company works actively with customers in each of its major markets
to develop commercial applications of specialized grades of bentonite. It
maintains a bentonite research center and laboratory testing facility adjacent
to its corporate headquarters. When a need for a product that will accomplish a
particular goal is perceived, the Company works to develop the product, research
its marketability and study the feasibility of its production. The Company also
co-develops products with customers, or others, as needs arise. The Company's
development efforts emphasize markets with which it is familiar and products for
which it believes there is a viable market.
The Company holds a number of U.S. and international patents covering
the use of bentonite and products containing bentonite. The Company follows the
practice of obtaining patents on new developments whenever feasible. The
Company, however, does not consider that any one or more of such patents is
material to its minerals and environmental businesses as a whole.
Research and Development
All Company business segments share research and laboratory facilities
adjacent to the corporate headquarters. Technological developments are shared
among the companies, subject to license agreements where appropriate.
Regulation and Environmental
The Company believes it is in material compliance with applicable
regulations now in effect for surface mining. Since reclamation of exhausted
mining sites has been a regular part of the Company's surface mining operations
for the past 34 years, maintaining compliance with current regulations has not
had a material effect on mining costs. Reclamation costs are reflected in the
prices of the bentonite sold.
The grinding and handling of dried clay is part of the production
process and, because it generates dust, the Company's mineral processing plants
are subject to applicable clean air standards (including Title V of the Clean
Air Act). All of the Company's plants are equipped with dust collection systems.
The Company has not had, and does not presently anticipate, any significant
regulatory problems in connection with its dust emission, though it expects
ongoing expenditures for the maintenance of its dust collection systems and
required annual fees.
The Company's mineral operations are also subject to other federal,
state, local and foreign laws and regulations relating to the environment and to
health and safety matters. Certain of these laws and regulations provide for the
imposition of substantial penalties for noncompliance. While the costs of
compliance with, and penalties imposed under, these laws and regulations have
not had a material adverse effect on the Company, future events, such as changes
in, or modified interpretations of, existing laws and regulations, enforcement
policies, and further investigation or evaluation of potential health hazards of
certain products, may give rise to additional compliance and other costs that
could have a material adverse effect on the Company.
TRANSPORTATION
The Company operates a long-haul trucking business and a freight
brokerage business primarily for delivery of finished products throughout the
continental United States. Through its transportation operation, the Company is
better able to control costs, maintain delivery schedules and assure equipment
availability for delivery of its products. The long-haul trucking subsidiary
performs transportation services on outbound movements from the Company's
production plants and attempts to haul third parties' products on return trips
whenever possible. In 2002, approximately 34% of the revenues of this operation
involve services provided to the Company's domestic minerals and environmental
segments.
8
CORPORATE ACTIVITIES - NANOCOMPOSITE PRODUCT DEVELOPMENT
The Company is always seeking to develop broader-based technologies
that may use bentonite for new, value-added applications. One such technology is
nanocomposites for the plastics industry. In 1995, the Company established its
Nanocor subsidiary to develop surface-modified bentonites suitable for the
emerging nanocomposite market. The primary raw material is bentonite. For some
applications, material will be purchased from third party suppliers. Surface
treatment chemicals, added in the production process, are readily available on
the merchant market.
The Company continues to focus its development on the use of bentonite
as a functional additive for plastics. The technology consists of dispersing
highly purified bentonite of nanometer size (one-billionth of a meter) in
plastic resins. Nanocor has identified commercial applications for Nanomer(R)
products in the consumer packaging, engineered products and performance coatings
markets. Plastic nanocomposites provide improved physical properties in products
used in these markets. Those improved physical properties include heat
resistance, dimensional stability and strength for engineered materials and gas
and moisture barrier for packaging materials.
The Company has a nanocomposite production facility in Aberdeen,
Mississippi. Sales to date have been insignificant. All costs, in excess of
sales, associated with the development, production and sales of nanocomposites
are included in corporate costs.
During 2002 the Company reviewed its alternatives in improving the
sales opportunities for its nanocomposite products. In connection with that
review the Company determined its best interest was served by finding partners
that had a strong presence in markets where nanocomposites could gain
significant business. The result was the execution of two strategic alliance
agreements.
In January 2003, an agreement was reached with Mitsubishi Gas Chemical
Company (MGC) which involves the manufacture and sale of high-barrier plastics
that will combine the Company's patented nanocomposite technology and MXD6,
which is a form of nylon. MGC is the world's largest producer of MXD6, which is
an established product used in consumer and industrial packaging due to its
inherent gas barrier properties. A MXD6-nanocomposite has significantly higher
gas barrier properties which will greatly improve sales potential in the
packaging market. MGC will lead sales and marketing of the product line with
assistance from the Company's sales staff. Additionally, the companies will
combine research and development resources to create new product variations. The
Company will license to MGC its intellectual property that relates to MXD6. In
addition to the sale of Nanomer products to MGC for use in the production of the
MXD6-nanocomposite, the Company will earn revenue from the profit generated from
sales of those nanocomposites by MGC.
The Company also reached an agreement with PolyOne Corporation in
January 2003 that involves the sales, marketing and development of
polyolefin-nanocomposite concentrates and, in some cases, nanocomposite
plastics. PolyOne is the world's largest polymer services company which includes
the production of plastic compounds. The focus of the alliance will be on
improving strength and fire-resistant properties of polyolefin plastics as well
as their heat stability, gas barrier and electrostatic dissipation. Polyolefins
include a wide variety of plastic resins that are used in a multitude of
consumer and industrial products, including the electronics, telecommunications,
automotives, household and packaging sectors. The companies believe that
polyolefin-nanocomposite concentrates will be easy to process and allow
production of lighter weight plastics. PolyOne will lead sales of the products
with assistance from the Company's personnel, and the companies will combine
research and development resources engaged in the creation of
polyolefin-nanocomposite compounds. Similar to its alliance agreement with MGC,
the Company will license its intellectual property that relates to
polyolefin-nanocomposites to PolyOne. In addition to earning profits from the
sale of Nanomer products to PolyOne for use in the production of
polyolefin-nanocomposites, the Company will earn revenue from the profit
generated from sales of those nanocomposites. Sales to date from these alliances
have been insignificant.
9
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 30% of the Company's 2002 net sales were to customers in
countries other than the United States. To enhance its overseas market
penetration, the Company maintains mineral processing plants in the United
Kingdom, Australia, Korea and Thailand, as well as a blending plant in Canada.
Through joint ventures, the Company also has the capability to process minerals
in Egypt, India, Mexico and China. Chartered vessels deliver large quantities of
the Company's bulk, dried sodium bentonite to the plants in the United Kingdom,
Australia, Thailand and Korea where it is processed and mixed with other clays
and distributed throughout Europe, Australia and Southeast Asia. The Company's
U.S. bentonite is also shipped in bulk to Japan, where it is sold by the
Japanese joint venture. In addition, the Company also maintains a worldwide
network of independent dealers, distributors and representatives.
The Company manufactures geosynthetic clay liners in the United
Kingdom, Poland and Korea, primarily for the European and Asian markets.
The Company's international operations are subject to the usual risks
of doing business abroad, such as currency fluctuations and devaluation,
restrictions on the transfer of funds and import and export duties.
See Note 3 of the Company's Notes to Consolidated Financial Statements
included elsewhere herein. This Note is incorporated by reference for sales
attributed to foreign operations and export sales from the United States.
EMPLOYEES
As of December 31, 2002, the Company employed 1,134 persons, 401 of
whom were employed outside of the United States. At December 31, 2002, there
were approximately 734, 319 and 26 persons employed in the Company's minerals,
environmental and transportation segments, respectively, along with 55 corporate
employees. The corporate employees include personnel engaged in the
nanocomposite research and development effort. Operating plants are adequately
staffed, and no significant labor shortages are presently foreseen.
Approximately 62 of the Company's employees in the United States are represented
by five labor unions, which have entered into separate collective bargaining
agreements with the Company. Employee relations are considered good.
AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements and other information filed by the Company at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call (800) SEC-0330 for further information on the Public Reference Room. The
SEC maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The Company's filings are also available to the public at the web site
maintained by the SEC, www.sec.gov.
The Company's principal Internet address is www.amcol.com. The Company
makes available free of charge on www.amcol.com its annual, quarterly and
current reports, and amendments to those reports, as soon as reasonably
practicable after it electronically files such material with, or furnishes it
to, the SEC.
10
Item 2. Properties
The Company and its subsidiaries operate the following plants, mines
and other facilities, all of which are owned, except as noted:
- --------------------------------------------------------------------------------
LOCATION PRINCIPAL FUNCTION
- --------------------------------------------------------------------------------
MINERALS
- --------------------------------------------------------------------------------
Albion, MI (1) Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Belle Fourche, SD Mine and process sodium bentonite
- --------------------------------------------------------------------------------
Butler, GA Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Chattanooga, TN Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Colony, WY (two plants) Mine and process sodium bentonite,
package cat litter
- --------------------------------------------------------------------------------
Columbus, OH (1) Process chromite sand
- --------------------------------------------------------------------------------
Gascoyne, ND Mine and process leonardite
- --------------------------------------------------------------------------------
Granite City, IL (1) Package cat litter; process chromite
sand
- --------------------------------------------------------------------------------
Letohatchee, AL Package and load calcium bentonite
- --------------------------------------------------------------------------------
Lovell, WY (3) Mine and process sodium bentonite
- --------------------------------------------------------------------------------
Lufkin, TX Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Neenah, WI Blend ADDITROL(R)and fluxes
- --------------------------------------------------------------------------------
New Haven, WV Blend melt additives
- --------------------------------------------------------------------------------
Sandy Ridge, AL Mine and process calcium bentonite;
blend ADDITROL(R)
- --------------------------------------------------------------------------------
Toronto, Ontario, Canada (3) Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Troy, IN Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Waterloo, IA Blend ADDITROL(R)
- --------------------------------------------------------------------------------
York, PA Blend ADDITROL(R); package cat litter
- --------------------------------------------------------------------------------
Beijing, China (2) Sales Office
- --------------------------------------------------------------------------------
Chao Yang, Liaoning, China (4) Mine and process calcium bentonite
- --------------------------------------------------------------------------------
Ellesmere Port, Wirral, U.K. (1) Process fluorspar
- --------------------------------------------------------------------------------
Geelong, Victoria, Australia (1)(3) Process bentonite; blend ADDITROL(R)
- --------------------------------------------------------------------------------
Kyung-Buk, South Korea Mine and process bentonite
- --------------------------------------------------------------------------------
Rayong, Thailand Process bentonite
- --------------------------------------------------------------------------------
Telford, Shropshire, U.K. (1) Package silica gel and desiccant clay
- --------------------------------------------------------------------------------
Winsford, Cheshire, U.K. Process calcium bentonite and other
minerals
- --------------------------------------------------------------------------------
ENVIRONMENTAL
- --------------------------------------------------------------------------------
Broussard, LA Environmental Offshore operations and
distribution
- --------------------------------------------------------------------------------
Fairmount, GA Manufacture Bentomat(R)and Claymax(R)
geosynthetic clay liners
- --------------------------------------------------------------------------------
Houston, TX (1) Environmental Offshore sales
- --------------------------------------------------------------------------------
Lovell, WY (3) Manufacture Bentomat(R)and Claymax(R)
geosynthetic clay liners
- --------------------------------------------------------------------------------
New Orleans, LA (1) Environmental Offshore sales
- --------------------------------------------------------------------------------
Villa Rica, GA Manufacture components for geosynthetic
clay liners
- --------------------------------------------------------------------------------
Birkenhead, Merseyside, U.K. (2)(3) Manufacture Bentomat(R)geosynthetic
clay liner; research laboratory;
headquarters for CETCO (Europe) Ltd.
- --------------------------------------------------------------------------------
Copenhagen, Denmark (1) Sales and distribution for CETCO
(Europe) Ltd.
- --------------------------------------------------------------------------------
Geelong, Victoria, Australia (1)(3) Sales and distribution for CETCO
products
- --------------------------------------------------------------------------------
Paris, France (1) Sales and distribution for CETCO
(Europe) Ltd.
- --------------------------------------------------------------------------------
Pyeongtaek, South Korea Manufacture Bentomat(R)geosynthetic
clay liners
- --------------------------------------------------------------------------------
Seoul, South Korea (1) Sales and distribution for CETCO
Korea Ltd.
- --------------------------------------------------------------------------------
Singapore (1) Sales and distribution for CETCO
Environmental Technologies Pte Ltd.
- --------------------------------------------------------------------------------
Szczytno, Poland Manufacture Bentomat(R)and Claymax(R)
geosynthetic clay liners
- --------------------------------------------------------------------------------
Tanager, Norway (1) Sales and distribution for CETCO
(Europe) Ltd.
- --------------------------------------------------------------------------------
Toronto, Ontario, Canada (3) Sales and distribution for CETCO
Canada Ltd.
- --------------------------------------------------------------------------------
TRANSPORTATION
- --------------------------------------------------------------------------------
Scottsbluff, NE Transportation headquarters and
terminal
- --------------------------------------------------------------------------------
CORPORATE
- --------------------------------------------------------------------------------
Arlington Heights, IL (1) Corporate headquarters; CETCO
headquarters; American Colloid
Company headquarters; Nanocor, Inc.
headquarters; research laboratory
- --------------------------------------------------------------------------------
Aberdeen, MS Process purified bentonite
(Nanocor, Inc.)
- --------------------------------------------------------------------------------
(1) Leased.
(2) Certain offices and facilities are leased.
(3) Shared facilities between minerals and environmental segment.
(4) 75% owned joint venture.
11
Item 3. Legal Proceedings
The Company is party to a number of lawsuits arising in the normal
course of its business. The Company does not believe that any pending litigation
will have a material adverse effect on its consolidated financial position.
The Company's processing operations require permits from various
governmental authorities. From time to time, the Company has been contacted by
government agencies with respect to required permits or compliance with existing
permits. While the Company has been notified of certain situations of
non-compliance, management does not expect the fines or the cost of compliance,
if any, to be significant.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of Registrant
- ------------------------------------------------------------------------------------------------------------------------------------
NAME AGE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
Gary L. Castagna 41 Senior Vice President and Chief Financial Officer of the Company since February 2001; prior thereto,
a consultant to AMCOL since June 2000; prior thereto, Vice President of the Company and President
of Chemdal International Corporation (this business, a former subsidiary of AMCOL, consisted of
the absorbent polymers business that was sold to BASF AG in June 2000) since August 1997;
prior thereto,Vice President of Finance for Chemdal International Corporation.
Since January 2000, Director of M~Wave Incorporated, a manufacturer and distributor of
printed circuit boards.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Lloyd F. Love 56 Vice President and Chief Information Officer of the Company since July 1999;
prior thereto, Chief Information Officer of Baxter Credit Union since 1997; prior
thereto, Vice President, Information Services of Caremark International since
1992 (acquired by MedPartners in mid-1996).
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Peter L. Maul 53 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ryan F. McKendrick 51 Vice President of the Company and President of Colloid Environmental
Technologies Company since November 1998; prior thereto, Vice President of
Colloid Environmental Technologies Company since 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Gary Morrison 47 Vice President of the Company and President of American Colloid Company
since February 2000; prior thereto, Executive Vice President of American Colloid
Company since 1998; prior thereto, Vice President of American Colloid
Company since 1994.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Clarence O. Redman 60 Secretary of the Company since 1982. Clarence O. Redman is of counsel to the law firm of
Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company, since
October 1997; prior thereto,
an individual and corporate
partner and Chief Executive
Officer of the law firm of
Keck, Mahin & Cate; a Director
since 1989.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Lawrence E. Washow 49 Chief Executive Officer since May 2000; President of the Company since May 1998;
Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President
of the Company since 1994 and President of Chemdal International Corporation since 1992;
a Director since February, 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
All executive officers of the Company are elected annually by the Board
of Directors for a term expiring at the annual meeting of directors following
their election, or when their respective successors are elected and shall have
qualified.
12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on The New York Stock Exchange under
the symbol ACO. The following table sets forth, for the periods indicated, the
high and low closing sale prices of the common stock, as reported by The New
York Stock Exchange, and cash dividends declared per share.
- ----------------------------------------------------------------------------------------------------
Stock Price
--------------------- Cash Dividends
High Low Declared Per Share
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2002: 1st Quarter $ 7.35 $ 6.04 $0.015
- ----------------------------------------------------------------------------------------------------
2nd Quarter $ 6.60 $ 5.57 0.020
- ----------------------------------------------------------------------------------------------------
3rd Quarter $ 6.65 $ 4.75 0.030
- ----------------------------------------------------------------------------------------------------
4th Quarter $ 6.09 $ 4.81 0.030
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2001: 1st Quarter $ 5.00 $ 3.55 $0.010
- ----------------------------------------------------------------------------------------------------
2nd Quarter $ 6.24 $ 3.84 0.015
- ----------------------------------------------------------------------------------------------------
3rd Quarter $ 6.70 $ 5.55 0.015
- ----------------------------------------------------------------------------------------------------
4th Quarter $ 7.20 $ 5.60 0.015
- ----------------------------------------------------------------------------------------------------
The Company has paid cash dividends every year for 65 years. In
addition, the Company distributed $14.00 per share to its shareholders on June
30, 2000 in connection with a plan of partial liquidation related to the sale of
the absorbent polymers business.
As of February 28, 2003, there were 2,875 holders of record of the
common stock, excluding shares held in street name.
Item 6. Selected Financial Data
The following is selected financial data for the Company and its
subsidiaries for the five years ended December 31, 2002. Per share amounts have
been adjusted to reflect a three-for-two stock split in December 1997, effected
in the form of a stock dividend.
13
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Operations Data
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 298,873 $ 275,288 $ 284,142 $ 296,118 $ 292,783
- -------------------------------------------------------------------------------------------------------------------
Gross profit 71,868 66,305 68,398 67,313 64,218
- -------------------------------------------------------------------------------------------------------------------
General, selling and administrative expenses 52,210 47,740 48,071 56,925 50,416
- -------------------------------------------------------------------------------------------------------------------
Business realignment and other charges -- -- 2,357 11,575 --
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 19,658 18,565 17,970 (1,187) 13,802
- -------------------------------------------------------------------------------------------------------------------
Investment income -- 3,015 9,816 -- --
- -------------------------------------------------------------------------------------------------------------------
Change in value of interest rate swap -- (401) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net interest expense (512) (2,196) (3,160) (3,440) (2,121)
- -------------------------------------------------------------------------------------------------------------------
Net other income (expense) 43 223 594 (1,069) 694
- -------------------------------------------------------------------------------------------------------------------
Pretax income (loss) 19,189 19,206 25,220 (5,696) 12,375
- -------------------------------------------------------------------------------------------------------------------
Income taxes (benefit) 6,916 6,155 7,155 (1,815) 3,524
- -------------------------------------------------------------------------------------------------------------------
Income from joint ventures 531 28 470 448 8
- -------------------------------------------------------------------------------------------------------------------
Minority interest in net loss of subsidiary 164 59 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 12,968 13,138 18,535 (3,433) 8,859
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations -- (879) (8,185) 25,667 13,226
- -------------------------------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations -- 1,154 316,330 -- --
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss on early extinguishment of debt -- -- (443) -- --
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- (182) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 12,968 13,231 326,237 22,234 22,085
- -------------------------------------------------------------------------------------------------------------------
Per Share Data
- -------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (2)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 0.46 0.47 0.67 (0.13) 0.32
- -------------------------------------------------------------------------------------------------------------------
Discontinued operations -- 0.01 11.20 0.96 0.47
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss -- -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- (0.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 0.46 0.47 11.85 0.83 0.79
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share (3)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 0.43 0.43 0.62 (0.12) 0.31
- -------------------------------------------------------------------------------------------------------------------
Discontinued operations -- 0.01 10.29 0.94 0.46
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss -- -- (0.01) -- --
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- (0.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 0.43 0.43 10.90 0.82 0.78
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity (1) 5.43 4.98 4.69 6.94 6.44
- -------------------------------------------------------------------------------------------------------------------
Dividends 0.10 0.06 0.16 0.27 0.23
- -------------------------------------------------------------------------------------------------------------------
Partial liquidation distribution -- -- 14.00 -- --
- -------------------------------------------------------------------------------------------------------------------
Continued...
(1) Based on the number of common shares outstanding at the end of the year.
(2) Based on the weighted average common shares outstanding for the year.
(3) Based on the weighted average common shares outstanding, including common
stock equivalents, for the year.
14
SUMMARY OF OPERATIONS (continued)
(In thousands, except ratios and share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding Data
- ------------------------------------------------------------------------------------------------------------------------------------
End of period 27,881,903 28,256,389 28,781,304 26,852,056 26,869,372
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-basic 28,133,795 28,193,234 27,523,157 26,772,569 27,918,391
- ------------------------------------------------------------------------------------------------------------------------------------
Incremental impact of stock options 2,014,725 2,412,826 2,433,533 426,694 467,469
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-diluted 30,148,520 30,606,060 29,956,690 27,199,263 28,385,860
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets $ 111,133 $ 101,177 $ 259,980 $ 138,614 $ 141,442
- ------------------------------------------------------------------------------------------------------------------------------------
Cash equivalents included in current assets -- -- 168,549 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net current assets of discontinued
operations included in current assets -- 798 -- 47,668 41,859
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 81,847 72,348 74,665 78,911 80,158
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term assets 28,848 22,805 31,122 102,164 105,190
- ------------------------------------------------------------------------------------------------------------------------------------
Net long-term assets of discontinued
operations included in long-term assets -- 311 6,932 87,554 82,958
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 221,828 196,330 365,767 319,689 316,874
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities 52,639 31,083 169,584 33,557 51,448
- ------------------------------------------------------------------------------------------------------------------------------------
Net current liabilities of discontinued
operations included in current liabilities -- -- 1,484 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued income taxes related to sale of
discontinued operations included in
current liabilities -- -- 135,095 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 5,573 13,245 51,334 91,067 93,359
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 12,233 11,275 9,942 7,692 8,869
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 151,383 140,727 134,907 186,448 172,914
- ------------------------------------------------------------------------------------------------------------------------------------
Other Statistics for Continuing Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization $ 20,009 $ 17,427 $ 17,000 $ 19,093 $ 17,195
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 16,223 14,730 14,975 15,796 23,976
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit margin 24.0% 24.1% 24.1% 22.7% 21.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) margin 6.6% 6.7% 6.3% (0.4%) 4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit margin before business
realignment and other charges 6.6% 6.7% 7.2% 3.7% 4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax profit (loss) margin 6.4% 7.0% 8.9% (1.9%) 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Effective tax (benefit) rate 36.0% 32.0% 28.4% (31.9%) 28.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Net profit (loss) from continuing operations margin 4.3% 4.8% 6.5% (1.2%) 3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Return on ending equity 8.6% 9.3% 13.7% (1.8%) 5.1%
- ------------------------------------------------------------------------------------------------------------------------------------
15
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results
of Operations describes relevant aspects of the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to select accounting policies that are
appropriate for the Company's business, and to make certain estimates, judgments
and assumptions about matters that are inherently uncertain in applying those
policies. On an ongoing basis, the Company re-evaluates these estimates,
judgments and assumptions for reasonableness because of the critical impact that
these factors have on the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the periods presented. Actual results may differ from these estimates.
The Company's management has identified the most critical accounting
policies upon which the financial statements are based and that involve the most
complex and subjective decisions and assessments. These policies relate to the
valuation of accounts receivable and inventories, the recognition of
depreciation and impairment in the carrying value of property, plant and
equipment, and accounting for pension benefits. Senior management of the Company
has discussed the development, selection and disclosure of these policies with
the members of the Audit Committee of our Board of Directors. These accounting
policies are disclosed in the notes to the consolidated financial statements.
The discussion which follows should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K.
Described here are the critical accounting policies of the Company:
Valuation of Accounts Receivable
The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. The Company's customer base is
diverse and includes customers located throughout the world. Payment terms in
certain of the foreign countries in which the Company does business are longer
than those that are customary in the United States, and as a result, may give
rise to additional credit risk related to outstanding accounts receivable from
these non-U.S. customers. Likewise, a change in the financial position,
liquidity or prospects of any of the Company's customers could have an impact on
the Company's ability to collect amounts due. While concentrations of credit
risk related to trade receivables are somewhat limited by the Company's large
customer base, the Company does extend significant credit to some of its
customers.
The Company makes estimates of the amounts of its gross accounts
receivable that will not be collectible, and records an allowance for doubtful
accounts to reduce the carrying value of accounts receivable to the amount that
is expected to be realized. The allowance for doubtful accounts is established
based upon the Company's historical bad debt experience, a review of the overall
aging of the accounts, and an analysis of specific customer accounts,
particularly those with past-due balances. The recorded allowance for doubtful
accounts is intended to cover specific customer collection issues identified by
management at the balance sheet date, and to provide for potential losses from
other accounts based on the Company's historical experience. Increases in the
allowance for doubtful accounts are recorded as an expense and included in
general, selling and administrative expenses in the period identified. The
Company's estimate of the required allowance for doubtful accounts is a critical
accounting estimate because it is susceptible to change from period to period.
In addition, it requires management to make judgments about the future
collectibility of customer accounts.
Inventory Valuation
Inventories are recorded at the lower of actual manufactured or
purchased cost, or estimated net realizable value. In order to determine net
realizable value, management regularly reviews inventory quantities on hand and
evaluates significant items to determine whether they are excess or obsolete.
The Company records the value of estimated excess or obsolete inventory as a
reduction of inventory and as an expense which is included in cost of sales in
the period it is
16
identified. The Company's estimate of excess and obsolete inventory is a
critical accounting estimate because it is susceptible to change from period to
period. In addition, it requires management to make judgments about the future
demand for inventory.
In order to quantify excess or obsolete inventory, management prepares
lists of inventory quantities on hand and determines the amount of such
inventories that, based on projected demand, are not anticipated to be sold
within the next 12 to 24 months or, based on our current product offerings, are
excess or obsolete. This list is then reviewed with sales and production
management personnel to determine whether this list of potential excess or
obsolete inventory is complete. Factors which impact this evaluation include,
for example, whether there has been a change in the market or packaging for
particular products, and whether there are components of inventory that
incorporate obsolete technology. In certain businesses in which the Company is
engaged, such as the domestic cat litter business, product and packaging changes
can occur rapidly and expose the Company to excess and obsolete inventories.
Goodwill and Long-lived Assets
The Company has made substantial investments in property, plant and
equipment and has a moderate investment in goodwill. For property, plant and
equipment, the Company evaluates the recoverability of these assets whenever
events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. For goodwill, the Company performs an annual
impairment assessment (or more frequently if impairment indicators arise) as
required by Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.
In analyzing the fair value of goodwill and assessing the
recoverability of the carrying value of property, plant and equipment,
management uses models which are based on estimates of future operating
performance and related cash flows. In preparing these models, management must
make estimates in projecting future cash flows attributable to the reporting
unit or assets being tested, in selecting a discount rate that reflects the
related business risks, and in determining the appropriate perpetuity or
disposal value. In developing these projections of future cash flows, the
Company makes a variety of important assumptions and estimates that have a
significant impact on management's assessments of whether the carrying values of
goodwill and property, plant and equipment should be adjusted to reflect
impairment. Among these are assumptions and estimates about the future growth
and profitability of the related business unit or asset, and assumptions about
anticipated future economic, regulatory and political conditions in the relevant
market.
The Company's estimates related to the carrying values of goodwill and
property, plant and equipment are considered to be critical accounting estimates
because they are susceptible to change from period to period based on a variety
of factors. For example, judgment is required to determine whether events or
changes in circumstances indicate that the carrying value of the assets may not
be recoverable. In addition, in performing assessments of the carrying values of
these assets, management is required to make judgments about the future
business, economic, regulatory, and political conditions affecting these assets,
as well as to select the appropriate risk-related rates for discounting
estimated future cash flows, and to develop reasonable estimates of disposal
values.
Retirement Benefits
The Company sponsors a defined-benefit pension plan for substantially
all of its domestic employees. In order to measure the expense and obligations
associated with these retirement benefits, management must make a variety of
estimates including discount rates used to value certain liabilities, expected
return on plan assets set aside to fund these liabilities, rate of compensation
increase, employee turnover rates, retirement rates, mortality rates and other
factors. The Company's benefit plan committee determines the key assumptions
related to the discount rate, expected investment rate of return and
compensation increases after consulting with the actuarial firm that performs
the calculations. Other assumptions are also set based on consultation with the
Company's actuaries.
The Company bases its estimates on its historical experience as well as
current facts and circumstances. The discount rate reflects the market rate for
high-quality fixed income debt instruments on the measurement date. The rate is
used to discount the future cash flows of benefit obligations back to the
measurement date. An increase in the discount rate reduces
17
pension expense and liabilities. The expected long-term rate of return on plan
assets is determined using historic market return trends combined with current
market conditions. An increase in the expected long-term rate of return on plan
assets reduces pension expense and liabilities. The expected rate of
compensation increase is determined based on the Company's near-term outlook and
assumed inflation. Higher compensation rate increases increase pension expense
and liabilities. Retirement rates are based primarily on actual plan experience.
Mortality rates are based on tables published by the insurance industry.
Different estimates used by management could result in the Company recognizing
different amounts of expense over different periods of time.
Liquidity and Financial Resources
At December 31, 2002, the Company had outstanding debt of $18.2 million
and cash and of $15.6 million, compared with $13.2 million of outstanding debt
and $10.3 million of cash at December 31, 2001. Long-term debt (including
current maturities) represented 10.7% of total capitalization at December 31,
2002, compared with 8.6% at December 31, 2001.
The Company had a current ratio of 2.11-to-1 at December 31, 2002 and
working capital of approximately $58.5 million, compared with 3.25-to-1 and
$70.1 million, respectively, at December 31, 2001. The current ratio and working
capital at December 31, 2002, were influenced by the reclassification of $12.6
million of long-term debt to short-term debt due to the maturity of the
Company's revolving credit facility in October, 2003.
The following schedule sets forth details of the Company's contractual
obligations at December 31, 2002:
- --------------------------------------------------------------------------------
Payments due by period
-------------------------------------------
Less
than 1 1-3 4-5 After 5
Total Year Years Years Years
- --------------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------------
Bank debt $18.2 $12.6 $ -- $ -- $5.6
- --------------------------------------------------------------------------------
Operating leases 11.3 2.7 4.3 3.1 1.2
----- ----- ---- ---- ----
- --------------------------------------------------------------------------------
Total contractual cash obligations $29.5 $15.3 $4.3 $3.1 $6.8
===== ===== ==== ==== ====
- --------------------------------------------------------------------------------
Bank debt includes $12.6 million due under a revolving credit
agreement, which provides for a commitment of $125 million in borrowing capacity
and matures on October 31, 2003. Borrowing rates on the facility can range from
0.25% to 0.75% above the 3-month LIBOR depending upon the Company's
capitalization ratios and the amount of the credit line used. The facility
requires certain covenants to be met including specific amounts of working
capital and tangible net worth, and also limits the Company's ability to make
additional borrowings and guarantees. The Company was in compliance with these
covenants at December 31, 2002.
The Company borrowed $5.0 million under an industrial revenue bond in
2000 to construct a new minerals processing facility in Butler, Georgia. The
bond matures in 2015 and is secured by the facility's assets.
Operating leases relate to noncancelable obligations for railroad cars,
truck trailers, computer software, office equipment, certain automobiles, and
office and plant facilities.
Investing and financing activities were funded by cash flow from
operations which was $36.6 million and net borrowings of $5.6 million from the
Company's revolving credit facility. The Company completed two acquisitions in
2002 which totaled $17.0 million. Capital expenditures for the year were $16.2
million while dividends paid to common shareholders totaled $2.7 million. The
Company repurchased $6.9 million of its common stock in 2002 and received $2.6
million in proceeds from the exercise of stock options.
Approximately $5.3 million remains available for repurchases of common
stock under an authorization approved by the Company's Board of Directors in
May, 2002.
Management believes that the Company has adequate resources to fund the
planned capital expenditures, dividend
18
payments and anticipated working capital requirements of the Company through its
existing committed credit lines, cash on hand and future operating cash flow.
Management expects to be able to either extend or replace the Company's current
revolving credit facility when it expires in October, 2003.
Since the mid 1980's, the Company and/or its subsidiaries have been
named as one of a number of defendants in product liability lawsuits relating to
the minor free-silica content within the Company's bentonite products used in
the metalcasting industry. The plaintiffs in these lawsuits are primarily
employees of the Company's foundry customers. To date, the Company has not
incurred significant costs in defending these matters. The Company believes it
has adequate insurance coverage and does not believe the litigation will have a
material adverse impact on the financial condition, liquidity or results of the
operation of the Company.
Results of Operations for the Three Years Ended December 31, 2002
Net sales increased by $23.5 million, or 8.6%, from 2001 to 2002 and
declined by $8.9 million, or 3.1% from 2000 to 2001. Approximately 87% of the
increase in net sales in 2002 as compared to 2001 was attributed to the
acquisition of Colin Stewart Minchem Limited (CSM) which was completed on May 1,
2002. CSM is a reporting unit within the minerals segment. The 2000 to 2001
sales decrease was primarily attributed to lower volume and pricing in certain
domestic minerals businesses.
Gross profit increased $5.6 million, or 8.4%, from 2001 to 2002 and
declined by $2.1 million, or 3.1%, from 2000 to 2001. CSM contributed
approximately 71% of the increase in gross profit in 2002 as compared to 2001,
while increased gross profits and margins from the environmental segment
contributed approximately 25% of the increase in 2002. The 2000 to 2001 decrease
was commensurate with the sales decrease for the period.
Operating profit increased by $1.1 million, or 5.9%, from 2001 to 2002.
The increase was attributed to the increase in sales and gross profits.
Operating profit increased by $0.6 million, or 3.3%, from 2000 to 2001. The 2000
period included business realignment charges of $2.4 million which consisted of
fees paid to professional firms that were hired to assist the Company in
exploring means of improving shareholder value.
Income from joint ventures was $0.5 million in 2002, an increase of
$0.5 million from 2001. In 2001, the Company recorded a write-down of $0.4
million related to an investment in a Chinese joint venture. The Company's
interest in the joint venture was sold during 2002. The decrease in income from
joint ventures from 2000 to 2001 was also caused by the write-down in the
Chinese joint venture investment.
A review of sales, gross profit, general, selling and administrative
expenses and operating profit by segment follows:
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------------------------
Minerals 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Product sales $156,174 91.0% $133,903 89.3% $146,017 89.3%
Shipping revenue 15,369 9.0% 16,042 10.7% 17,457 10.7%
-------- ----- -------- ----- -------- -----
Net sales 171,543 100.0% 149,945 100.0% 163,474 100.0% $21,598 14.4% $(13,529) -8.3%
-------- ----- -------- ----- -------- -----
Cost of sales - product 124,267 72.4% 106,314 70.9% 112,141 68.6%
Cost of sales - shipping 15,369 9.0% 16,042 10.7% 17,457 10.7%
-------- ----- -------- ----- -------- -----
Cost of sales 139,636 81.4% 122,356 81.6% 129,598 79.3%
-------- ----- -------- ----- -------- -----
Gross profit 31,907 18.6% 27,589 18.4% 33,876 20.7% 4,318 15.7% (6,287) -18.6%
General, selling and
administrative expenses 16,037 9.3% 12,892 8.6% 12,580 7.7% 3,145 24.4% 312 2.5%
-------- ----- -------- ----- -------- -----
Operating profit $ 15,870 9.3% $ 14,697 9.8% $ 21,296 13.0% $ 1,173 8.0% $ (6,599) -31.0%
- -----------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
CSM contributed sales of $20.5 million since its acquisition, which was
effective from May 1, 2002. Increased sales from the international subsidiaries
accounted for the remainder of the increase. Within the domestic minerals
business, sales
19
to the metalcasting market increased, but that was offset by
declines in the pet products and export units. Overall, sales from the domestic
minerals business were flat compared to 2001.
Approximately $4.0 million of the improvement in gross profit was
attributed to CSM. Gross profit from the domestic minerals business was flat
compared to 2001.
CSM accounted for approximately $2.0 million of the increase in
general, selling and administrative expenses. Higher personnel and benefit
expenses in the domestic minerals business accounted for the remaining increase.
2001 vs. 2000
In the first quarter of 2001 the Company completed its planned exit
from the U.K. cat litter business and the sale of its European cat litter
business. On December 31, 2001, the Company completed the sale of its U.K.
metalcasting business. The discussion of the mineral segment results for the
years ended 2001 and 2000 excludes the U.K. cat litter and metalcasting
businesses as they have been classified as discontinued operations for all
periods reported.
Sales declined 8.3% from 2000 to 2001 primarily due to lower sales and
volume levels in the domestic metalcasting and cat litter businesses. The cat
litter business also experienced lower pricing in the second half of 2001.
Lower volume levels in the domestic metalcasting and cat litter
businesses caused the 2001 gross margin and operating margin to drop by 230 and
320 basis points, respectively, from 2000 results.
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Environmental 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Product sales $ 98,208 92.7% $ 96,046 92.6% $ 89,315 91.1%
Shipping revenue 7,718 7.3% 7,720 7.4% 8,695 8.9%
-------- ----- -------- ----- -------- -----
Net sales 105,926 100.0% 103,766 100.0% 98,010 100.0% $ 2,160 2.1% $5,756 5.9%
-------- ----- -------- ----- -------- -----
Cost of sales - product 61,615 58.2% 60,850 58.6% 58,385 59.6%
Cost of sales - shipping 7,718 7.3% 7,720 7.4% 8,695 8.8%
-------- ----- -------- ----- -------- -----
Cost of sales 69,333 65.5% 68,570 66.1% 67,080 68.4%
Gross profit 36,593 34.5% 35,196 33.9% 30,930 31.6% 1,397 4.0% 4,266 13.8%
General, selling and
administrative expenses 22,220 20.9% 20,042 19.3% 19,336 19.8% 2,178 10.9% 706 3.7%
-------- ----- -------- ----- -------- -----
Operating profit $ 14,373 13.6% $ 15,154 14.6% $ 11,594 11.8% $ (781) (5.2%) 3,560 30.7%
- ---------------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
International sales accounted for all of the increase in sales over
2001. The segment's European offshore drilling service and building materials
businesses contributed to the increase in international sales. Exports from the
domestic business increased over 2001 but that was offset by a decrease in the
domestic offshore business.
Improved production costs in the segment's domestic lining technology
business contributed all of the increase in gross profit from 2001. Gross
profits from the international business declined even with the increase in
sales. Higher production costs at the segment's European operations caused the
decline. Improved production costs at the domestic lining technology operations
increased gross profit to offset the decline in the European operations.
General, selling and administrative expenses increased due to higher
compensation and benefit expenses, information technology costs, marketing and
promotion costs, and research and development spending.
20
2001 vs. 2000
Sales increased 5.9% in 2001 over 2000 primarily due to growth in the
offshore services and European business units. Gross margins expanded by 230
basis points in 2001 from 2000 due to increased sales of more profitable
products in the European business as well as lower production costs at that
operation.
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------------------
Transportation 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $32,509 100.0% $33,133 100.0% $34,036 100.0% $(624) (1.9%) $(903) (2.7%)
Cost of sales 29,141 89.6% 29,613 89.4% 30,444 89.4%
------ ----- ------ ----- ------ -----
Gross profit 3,368 10.4% 3,520 10.6% 3,592 10.6% (152) (4.3%) (72) (2.0%)
General, selling and
administrative expenses 2,401 7.4% 2,157 6.5% 2,115 6.2% 244 11.3% 42 2.0%
------ ----- ------ ----- ------ -----
Operating profit $ 967 3.0% $ 1,363 4.1% $ 1,477 4.4% $(396) (29.1%) $(114) (7.7%)
- -----------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
Approximately 34% of the segment's sales involve the domestic minerals
and environmental segments. Net sales declined due to lower third-party customer
and intersegment shipments. Fuel costs remained flat with 2001 levels. Increased
general, selling and administrative expenses were associated with higher
information technology and compensation costs.
2001 vs. 2000
Approximately 34% of the segment's sales involve the domestic minerals
and environmental segments. Lower sales in 2001 were primarily due to reduced
business levels with third party customers.
Gross margins for 2001 equaled 2000 as the mix of broker and trucking
business was the same in both years. Fuel costs remained flat with 2000 levels.
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
Corporate 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------
Intersegment shipping sales $(11,105) $(11,556) $(11,378)
Intersegment shipping costs (11,105) (11,556) (11,378)
-------- -------- --------
Gross profit -- -- --
Corporate general, selling
and administrative expenses 7,108 8,020 8,010 $ (912) (11.4%) $ 10 0.1%
Nanocomposite business
development expenses 4,444 4,629 6,030 (185) (4.0%) (1,401) (23.2%)
Business realignment and
other charges -- -- 2,357 -- 0.0% (2,357) (100.0%)
-------- -------- --------
Operating loss $(11,552) $(12,649) $(16,397) $ 1,097 8.7% $ 3,748 (22.9%)
-------
2002 vs. 2001
Intersegment shipping revenues and costs were related to services
provided by the transportation segment for certain domestic minerals and
environmental segment businesses. The services were provided at arms length
rates, and billed by the transportation segment to the minerals and
environmental segments, who in turn billed their customers. The intersegment
shipping sales and costs in the table above reflect the elimination of these
intersegment transactions.
Corporate costs include management information systems, human
resources, investor relations, corporate communications and finance.
Additionally, marketing, research and operating costs related to the development
of the
21
nanocomposite business are included in this segment. Management continues to
believe its nanocomposite technology has strong commercial potential.
Approximately 60% of the lower corporate administrative expenses in the
current year period were associated with increased allocation of certain costs
to the mineral, environmental and transportation segments. The remaining
decrease was attributed to lower personnel and legal costs. The decline in
nanocomposite expenses is associated with a restructuring of the business that
was implemented in the second quarter of 2001.
2001 vs. 2000
Corporate administrative expenses were flat in 2001 compared with 2000.
The nanocomposite business was restructured in the second quarter of
2001 which resulted in lower research costs in comparison to 2000.
During 2000, the Company engaged an investment banking firm to help
management evaluate various strategic options to enhance shareholder value. The
Company engaged in significant discussions involving the disposition of its
business, including the sale of certain parts and the potential spin-off of the
Nanocor business. In the process, the Company incurred approximately $2.4
million in professional fees. These expenses have been included as a component
of business realignment expenses.
Investment Income
Investment income was earned in 2001 and 2000 as a result of the
temporary investment of proceeds received on the sale of the absorbent polymers
segment. In 2001, investment income dropped to $0.06 per diluted share compared
with $0.20 per diluted share in 2000 as a result of lower average invested
funds. The Company paid approximately $130 million in 2001 for income taxes
associated with the sale. The remaining invested funds were liquidated in the
third quarter of 2001 and used to pay down long-term debt.
Net Interest Expense
Net interest expense was $0.5 million, $2.2 million and $3.2 million in
2002, 2001, and 2000, respectively. As discussed above, the Company reduced debt
by approximately $40 million in the third quarter of 2001 by liquidating funds
previously invested in cash equivalent securities. Consequently, the decrease in
2002 and 2001 was primarily due to lower average debt levels. Additionally, 2002
expense benefited from lower interest rates.
Other Income (Expense)
Other income in 2002 was less than $0.1 million. In 2001 and 2000,
other income was $0.2 million and $0.6 million, respectively. This item reflects
a number of miscellaneous transactions including gains and losses related to
foreign exchange transactions and disposals of fixed assets.
Income Taxes
The effective income tax rate for 2002 was 36.0% compared to 32.0% in
2001 and 28.4% in 2000. The increased tax rate in 2002 was attributed to a
greater portion of earnings generated in foreign jurisdictions with higher
corporate income tax rates. The rate increased in 2001 from 2000 primarily from
lower tax benefits associated with export incentives and higher state income
taxes.
22
Discontinued Operations
Discontinued operations reflect the operating results of the U.K.
metalcasting and cat litter businesses, which were sold or closed in 2001, and
the absorbent polymers segment, which was sold in 2000, for all periods
presented. Income from discontinued operations was $0.3 million in 2001, or
$0.01 per diluted share and $308.1 million in 2000, or $10.29 per diluted share.
No proceeds were received in connection with the sale of the U.K metalcasting
business. The acquirer will lease certain land and buildings from the Company
and pay a royalty related to a license for use of certain trademarks of the
Company. The license agreement has a ten year term and the royalty is based on
sales by the acquiring entity. In connection with the sale of the U.K.
metalcasting business the Company realized a loss on the disposal of assets of
$4.8 million and tax benefit of $6.0 million. The tax benefit is associated with
the write-off of the Company's investment in its U.K. minerals subsidiary.
Other Items
A charge of $0.01 per diluted share was recorded in 2001 related to the
cumulative effect of a change in accounting principle. The charge relates to the
adoption of Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities." An extraordinary
charge of $0.01 per diluted share was recorded in 2000 to reflect costs
associated with the early extinguishment of certain debt.
Net Income
Net income for 2002 was $13.0 million, a slight decrease from 2001.
Lower investment income was the primary reason for the decline. Net income for
2001 was $13.2 million compared with $326.2 million in 2000. Income from
discontinued operations in 2000 of $308.1 million was the primary reason for the
difference.
Earnings Per Share
Diluted earnings per share was calculated using the weighted average
number of shares of common stock, including common share equivalents,
outstanding during the year. Stock options issued to key employees and directors
are considered common share equivalents. As a result of the equity restructuring
following the sale of the absorbent polymers segment, all outstanding
unexercised options at June 30, 2000 were adjusted. The value of the options
remained the same as before the payment of the partial liquidation dividend,
however the number of options increased and the exercise prices were reduced.
This resulted in a greater number of common share equivalents during the second
half of 2000. The weighted average number of shares of common stock and common
stock equivalent shares outstanding was approximately 30.1 million in 2002, 30.6
million in 2001 and 30.0 million in 2000.
There were 27.9 million shares outstanding, excluding common share
equivalents, at December 31, 2002 compared to 28.2 million at December 31, 2001.
The 0.3 million share decrease was related to the exercise of stock options net
of the purchase of treasury shares.
Income from continuing operations in 2002 was $13.0 million, or $0.43
per diluted share, compared to $13.1 million, or $0.43 per diluted share, in
2001 and $18.5 million, or $0.62 per diluted share, in 2000. As previously
discussed, investment income and business realignment charges impacted the
reported earnings in 2001 and 2000. An analysis detailing the effects of these
items on diluted earnings per share from continuing operations appears below:
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Business realignment and other charges $ -- $ -- $(0.05)
Investment income -- 0.06 0.20
Income from operations excluding the above 0.43 0.37 0.47
----- ----- ------
Diluted earnings from continuing
operations $0.43 $0.43 $ 0.62
- --------------------------------------------------------------------------------
23
In 2001, the Company sold its U.K. metalcasting business and closed its
U.K. cat litter business. The operating results for these U.K. operations were
reclassified to discontinued operations for all periods presented. Diluted
income (loss) per share from discontinued operations for 2001 amounted to $0.01
per share, including $0.04 from the gain on the sale of these businesses,
compared to ($0.51) for 2000.
The absorbent polymers segment was sold to BASF AG on June 1, 2000. The
operating results for the absorbent polymers segment were reclassified to
discontinued operations for all periods presented. Diluted income from the
segment for 2000 amounted to $10.80 per share, including $10.56 from the gain on
the sale of the segment. The income from discontinued operations in 2000 was for
the five months ended May 31, 2000.
An extraordinary loss of $.01 per share related to the early
extinguishment of long-term debt was recorded in 2000.
Forward Looking Statements
Certain statements made from time to time by the Company, including
statements in the Management's Discussion and Analysis of Financial Condition
and Results of Operation section above, constitute "forward-looking statements"
made in reliance upon the safe harbor contained in Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements include
statements relating to the Company or its operations that are preceded by terms
such as "expects," "believes," "anticipates," "intends" and similar expressions,
and statements relating to anticipated growth, levels of capital expenditures,
future dividends, expansion into global markets and the development of new
products. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. The Company's actual results,
performance or achievements could differ materially from the results,
performance or achievements expressed in, or implied by, these forward-looking
statements as a result of various factors, including without limitation the
following:
Competition
Minerals. The minerals market is very competitive. We believe
competition is essentially a matter of product quality, price, delivery, service
and technical support. Several of our competitors in the U.S. market are larger
and have substantially greater financial resources. If we fail to compete
successfully based on these or other factors, we may lose customers or fail to
recruit new customers and our business and future financial results could be
materially and adversely affected.
Reliance on Metalcasting and Construction Industries
Approximately 48% of our minerals segment's sales and 30% of our
environmental segment's sales in 2002 were to the metalcasting and construction
markets, respectively. The metalcasting and construction markets depend heavily
upon the strength of the domestic and international economies. If these
economies weaken, demand for products by the metalcasting and construction
markets may decline and our business or future financial results in the minerals
and environmental segments may be adversely affected.
Regulatory and Legal Matters
Our operations are subject to various federal, state, local and foreign
laws and regulations relating to the environment and to health and safety
matters. Substantial penalties may be imposed if we violate certain of these
laws and regulations even if the violation was inadvertent or unintentional. If
these laws or regulations are changed or interpreted differently in the future,
it may become more difficult or expensive for us to comply. In addition,
investigations or evaluations of our products by government agencies may require
us to adopt additional safety measures or precautions. If our costs to comply
with such laws and regulations in the future materially increase, our business
and future financial results could be materially and adversely affected. The
Company may also be subject to adverse litigation results in
24
addition to increased compliance costs arising from future changes in laws and
regulations that may negatively impact its operations and profits.
Risks of International Expansion
An important part of our business strategy is to expand
internationally. We intend to seek acquisitions, joint ventures and strategic
alliances globally. Currently, our business outside the United States represents
approximately 30% of our consolidated sales. The approximate breakdown of the
sales outside of the United States for 2002 was as follows: Europe 64%; Latin
America (including Mexico) 5%; Asia 29%; and Africa along with the Middle East
2%. As we expand internationally, we will be subject to increased risks, which
may include the following:
o currency exchange or price control laws;
o currency translation adjustments;
o political and economic instability;
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o longer accounts receivable collection cycles; and
o adverse tax consequences.
The above listed events could result in sudden, and potentially
prolonged, changes in demand for the Company's products. Also, we may have
difficulty enforcing agreements and collecting accounts receivable through a
foreign country's legal system. At December 31, 2002, approximately 48% of the
gross accounts receivable were due from customers outside of the United States
and Canada. The breakdown of the overseas balance was as follows: Europe 66%;
Latin America (including Mexico) 12%; Asia 20%; and Africa and the Middle East
2%.
Volatility of Stock Price
The stock market has been extremely volatile in recent years. These
broad market fluctuations may adversely affect the market price of our common
stock. In addition, factors such as the following may have a significant effect
on the market price of our common stock:
o fluctuations in our financial results;
o our introduction of new services or products;
o announcements of acquisitions, strategic alliances or joint
ventures by us, our customers or our competitors;
o changes in analysts' recommendations regarding our common
stock; and
o general economic conditions.
There can be no assurance that the price of our common stock will
increase in the future or be maintained at its recent levels.
New Accounting Standards
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142") which supersedes APB Opinion No. 17, "Intangible
Assets". SFAS 142 addresses how intangible assets that are acquired individually
or with a group of other assets (but not those acquired in a business
combination) should be accounted for in financial statements upon their
acquisition. SFAS 142 also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in the
financial statements. SFAS 142 stipulates that goodwill should no longer be
amortized and instead should be subject to an annual impairment assessment. The
Company adopted the provisions of SFAS 142 effective January 1, 2002. Adoption
of SFAS 142 did not have a material effect on the consolidated financial
statements.
25
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143") which addresses financial accounting and
reporting for legal obligations associated with the retirement of tangible
long-lived assets and the related asset retirement costs. SFAS 143 requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated over the
life of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation is adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying the
obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003.
Management is currently evaluating the impact of the adoption of SFAS 143 on the
Company's consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities. SFAS 146 replaces EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". SFAS 146 is required to
be applied prospectively to exit or disposal activities initiated after December
31, 2002. The adoption of SFAS 146 is not expected to have a significant effect
on the Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"), which addresses financial
accounting and reporting for obligations under certain guarantees. FIN 45
requires, among other things, that a guarantor recognize a liability for the
fair value of an obligation undertaken in issuing a guarantee, under certain
circumstances. The recognition and measurement provisions of FIN 45 are required
to be applied prospectively to guarantees issued or modified after December 31,
2002. The adoption of FIN 45 is not expected to have a significant effect on the
Company's consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of SFAS No.
123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosure in both interim and annual
financial statements. Certain disclosure modifications are required for fiscal
years ending after December 15, 2002, and are included in the notes to the
consolidated financial statements included elsewhere in this report. The Company
is required to comply with the remaining additional disclosure requirements in
its quarterly reports for interim periods beginning in the first quarter of
2003.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51" ("FIN 46"),
which addresses the consolidation of variable interest entities as defined in
the Interpretation. FIN 46 applies immediately to variable interests in variable
interest entities created after January 31, 2003, and to variable interests in
variable interest entities obtained after January 31, 2003. The application of
FIN 46 is not expected to have a material effect on the Company's consolidated
financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation that manufactures and markets products
in countries throughout the world, the Company is subject to certain market
risks, including those related to foreign currency, interest rates and
government actions. The Company uses a variety of practices to manage these
market risks, including, when considered appropriate, derivative financial
instruments. The Company uses derivative financial instruments only for risk
management and does not use them for trading or speculative purposes.
Exchange Rate Sensitivity
The Company is exposed to potential gains or losses from foreign
currency fluctuations affecting net investments and earnings denominated in
foreign currencies. The Company's primary exposures are to changes in exchange
rates for
26
the U.S. dollar versus the euro, the British pound, the Canadian dollar, the
Australian dollar, the Mexican peso, the Thai baht, the Chinese renmimbi and the
Korean won. The Company also has significant exposure to changes in exchange
rates between the British pound and the euro.
The Company's various currency exposures often offset each other,
providing a natural hedge against currency risk. Periodically, specific foreign
currency transactions (e.g. inventory purchases, royalty payments, etc.) are
hedged with forward contracts to reduce the foreign currency risk. As of
December 31, 2002, the Company had no material outstanding foreign currency
contracts.
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instruments' actual cash flows are denominated in U.S.
dollars (US), Chinese renmimbi (RMB) and Thai baht (THB) as indicated in
parentheses.
- ---------------------------------------------------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------------------
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------------------
(US$ equivalent in thousands)
Short-term debt:
Variable rate (US) $12,600 $-- $-- $-- $-- $ -- $12,600 $12,600
Average interest rate 2.2% -- -- -- -- -- -- --
Long-term debt:
Variable rate (US) -- -- -- -- -- 5,000 5,000 5,000
Average interest rate -- -- -- -- -- 1.5% -- --
Variable rate (RMB) -- -- -- -- -- 144 144 144
Average interest rate -- -- -- -- -- 5.8% -- --
Variable rate (THB) -- -- -- -- -- 429 429 429
Average interest rate -- -- -- -- -- 4.5% -- --
------- --- --- --- --- ------- ------- -------
Total $12,600 $-- $-- $-- $-- $ 5,573 $18,173 $18,173
======= === === === === ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------
The Company periodically uses interest rate swaps to manage interest
rate risk on debt securities. These instruments allow the Company to exchange
variable rate debt into fixed rate or fixed rate debt into variable rate.
Interest rate differentials are paid or received on these arrangements over the
life of the agreements. At the end of 2002 and 2001, there were no interest rate
swaps outstanding.
The Company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
Company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company currently believes
its allowance for doubtful accounts is sufficient to cover customer credit
risks. The Company's accounts receivable financial instruments are carried at
amounts that approximate fair value.
27
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Financial Statement Schedule
on Page F-1. Such financial statements and schedule are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The following is a list of the names and ages of all directors and all
positions each person holds with the Company or other organizations.
Board of Directors of the Registrant
Arthur Brown, 62(1,2)
Chairman, President and Chief Executive Officer of Hecla Mining Company, a miner
and processor of silver and gold. Director since 1990.
Daniel P. Casey, 60
Retired Chief Financial Officer and Vice Chairman of the Board of Gaylord
Container Corp., a manufacturer and distributor of brown paper and packaging
products. Director since 2002.
Robert E. Driscoll, III, 64(1,2)
Retired Dean and Professor of Law, University of South Dakota. Director since
1985.
John Hughes, 60(3,4)
Chairman of the Board of Directors since May 1998; Chief Executive Officer of
the Company since 1985. Mr. Hughes retired as Chief Executive Officer in May
2000. Director since 1984.
Jay D. Proops, 61(1,3,4)
Private investor and former Vice Chairman and co-founder of The Vigoro
Corporation. Also a Director of Great Lakes Chemical Corporation. Director since
1995.
C. Eugene Ray, 70(1,2,3,4)
Retired Executive Vice President - Finance of Signode Industries, Inc., a
manufacturer of industrial strapping products. Director since 1981.
Clarence O. Redman, 60(2,3)
Secretary of AMCOL International Corporation. Since 1982, Counsel to the law
firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to
the Company. Previously, Mr. Redman was an individual and corporate partner of
the law firm of Keck, Mahin & Cate as the sole shareholder and President of
Clarence Owen Redman Ltd. Mr. Redman and his professional corporation also
served as Chief Executive Officer of Keck, Mahin & Cate until September 1997.
Director since 1989.
Dale E. Stahl, 55(2,3,4)
President and Chief Executive Officer of Inland Paperboard and Packaging, Inc.,
a subsidiary of Temple-Inland, Inc. which manufactures containerboard and
corrugated boxes, since June 2000; prior thereto, President and Chief Operating
Officer of Gaylord Container Corporation, a manufacturer and distributor of
brown paper and packaging products. Director since 1995.
28
Lawrence E. Washow, 49(3)
Chief Executive Officer of the Company since May 2000, President of the Company
since May 1998; Chief Operating Officer of the Company since 1997; prior
thereto, Senior Vice President of the Company since 1994 and President of
Chemdal International Corporation until August 1997. Director since 1998.
Audrey L. Weaver, 48(2)
Private investor. Director since 1997.
Paul C. Weaver, 40(3,4)
Vice president of Information Resources, Inc. since 2002, prior thereto,
Managing Partner of Consumer Aptitudes, Inc., both companies engage in marketing
research. Director since 1995.
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) Member of Executive Committee
(4) Member of Nominating Committee
Additional information regarding the directors of the Company is
included under the captions "Information Concerning Nominees," "Information
Concerning Continuing Members of the Board" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Company's proxy statement to be dated on
or before April 1, 2003, and is incorporated herein by reference. Information
regarding executive officers of the Company is included under a separate caption
in Part I hereof, and is incorporated herein by reference, in accordance with
General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of
Regulation S-K.
Item 11. Executive Compensation
Information regarding the above is included under the captions "Named
Officers' Compensation" and "Stock Perfromance" in the Company's proxy statement
to be dated on or before April 1, 2003, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners
and management is included under the caption "Security Ownership" in the
Company's proxy statement to be dated on or before April 1, 2003, and is
incorporated herein by reference.
Information regarding the Company's securities authorized for issuance
under equity compensation plans is included under the caption "Equity
Compensation Plan Information" in the Company's proxy statement to be dated on
or before April 1, 2003, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding the above is included under the caption "Certain
Relationships and Transactions" in the Company's proxy statement to be dated on
or before April 1, 2003, and is incorporated herein by reference.
Item 14. Controls and Procedures
Within the 90-day period prior to the filing of this Annual Report, an
evaluation was performed under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and
15d-14(c) under the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Company's disclosure controls and procedures are effective to ensure
that information required to be disclosed in the reports the Company files or
submits under the Exchange Act are recorded, processed, summarized and reported
as and when required.
There were no significant changes in the Company's internal controls or
in other factors that could significantly affect such internal controls
subsequent to the date of the evaluation described in the paragraph above,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
29
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
- --------------------------------------------------------------------------------
(a) 1. See Index to Financial Statements and Financial Statement
Schedule on Page F-1.
- --------------------------------------------------------------------------------
2. See Financial Statements and Index to Financial Statement
Schedule on Page F-1. Such Financial Statements and Schedule
are incorporated herein by reference.
- --------------------------------------------------------------------------------
3. See Index to Exhibits immediately following the signature
page.
- --------------------------------------------------------------------------------
(b) None.
- --------------------------------------------------------------------------------
(c) See Index to Exhibits immediately following the signature page.
- --------------------------------------------------------------------------------
(d) See Index to Financial Statements and Financial Statement Schedule
on Page F-1.
- --------------------------------------------------------------------------------
Item 15(a) Index to Financial Statements and Financial Statement Schedule
- --------------------------------------------------------------------------------
Page
- --------------------------------------------------------------------------------
(1) Financial Statements:
- --------------------------------------------------------------------------------
Independent Auditors' Report F-2
- --------------------------------------------------------------------------------
Consolidated Balance Sheets, December 31, 2002 and 2001 F-3
- --------------------------------------------------------------------------------
Consolidated Statements of Operations,
- --------------------------------------------------------------------------------
Years ended December 31, 2002, 2001 and 2000 F-4
- --------------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income,
- --------------------------------------------------------------------------------
Years ended December 31, 2002, 2001 and 2000 F-5
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity,
- --------------------------------------------------------------------------------
Years ended December 31, 2002, 2001 and 2000 F-6
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows,
- --------------------------------------------------------------------------------
Years ended December 31, 2002, 2001 and 2000 F-7
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-8
- --------------------------------------------------------------------------------
(2) Financial Statement Schedule:
- --------------------------------------------------------------------------------
Schedule II - Valuation and Qualifying Accounts F-26
- --------------------------------------------------------------------------------
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required, or because the required
information is not material.
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
AMCOL International Corporation:
We have audited the consolidated financial statements of AMCOL
International Corporation and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMCOL
International Corporation and subsidiaries as of December 31, 2002 and 2001, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As described in Note 1 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets", as of January 1, 2002.
KPMG LLP
Chicago, Illinois
February 28, 2003
F-2
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
ASSETS
- --------------------------------------------------------------------------------
December 31,
-------------------------
2002 2001
- --------------------------------------------------------------------------------
Current assets:
Cash $ 15,597 $ 10,320
Accounts receivable:
Trade, less allowance for doubtful accounts of
$2,642 and $2,127 in 2002 and 2001, respectively 45,675 41,331
Other 3,195 2,310
Inventories 38,854 34,593
Prepaid expenses 4,270 4,419
Net current assets of discontinued operations -- 798
Current deferred tax assets 2,825 4,286
Income taxes receivable 717 3,120
-------- --------
Total current assets 111,133 101,177
-------- --------
Investment in and advances to joint ventures 12,419 13,219
-------- --------
Property, plant, equipment, and mineral
rights and reserves:
Land and mineral rights and reserves 9,543 9,293
Depreciable assets 203,334 181,120
-------- --------
212,877 190,413
Less: accumulated depreciation 131,030 118,065
-------- --------
81,847 72,348
-------- --------
Other assets:
Goodwill and other intangible assets, less
accumulated amortization of $453 and $314 5,202 403
Net non-current assets of discontinued operations -- 311
Deferred tax assets 2,669 4,462
Other assets 8,558 4,410
-------- --------
16,429 9,586
-------- --------
$221,828 $196,330
======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
December 31,
-------------------------
2002 2001
- --------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 12,600 $ --
Accounts payable 17,918 9,239
Accrued liabilities 22,121 21,844
-------- --------
Total current liabilities 52,639 31,083
-------- --------
Long-term debt 5,573 13,245
-------- --------
Minority interests in subsidiaries 615 523
Other liabilities 11,618 10,752
-------- --------
12,233 11,275
-------- --------
Stockholders' equity:
Common stock, par value $.01 per share
Authorized 100,000,000 shares; issued
32,015,771 shares in 2002 and 2001 320 320
Additional paid in capital 69,850 71,905
Retained earnings 101,322 91,018
Accumulated other comprehensive income (loss) 2,005 (2,688)
-------- --------
173,497 160,555
Less:
Treasury stock (4,133,868 and 3,759,382
shares in 2002 and 2001, respectively) 22,114 19,828
-------- --------
151,383 140,727
-------- --------
$221,828 $196,330
======== ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------------
Continuing Operations
Net sales $ 298,873 $ 275,288 $ 284,142
Cost of sales 227,005 208,983 215,744
--------- --------- ---------
Gross profit 71,868 66,305 68,398
General, selling and administrative expenses 52,210 47,740 48,071
Business realignment and other charges -- -- 2,357
--------- --------- ---------
Operating profit 19,658 18,565 17,970
--------- --------- ---------
Other income (expense):
Investment income -- 3,015 9,816
Change in value of interest rate swap -- (401) --
Interest expense, net (512) (2,196) (3,160)
Other, net 43 223 594
--------- --------- ---------
(469) 641 7,250
--------- --------- ---------
Income before income taxes, equity in income
of joint ventures, and minority interest 19,189 19,206 25,220
Income tax expense 6,916 6,155 7,155
--------- --------- ---------
Income before equity in income of 12,273 13,051 18,065
joint ventures and minority interest
Income from joint ventures 531 28 470
Minority interest in net loss of subsidiary 164 59 --
--------- --------- ---------
Income from continuing operations 12,968 13,138 18,535
--------- --------- ---------
Discontinued Operations
Loss from operations (net of income taxes) -- (879) (8,185)
Gain on sale (net of income tax benefit of
$6,000 in 2001 and expense of $208,964 in 2000) -- 1,154 316,330
--------- --------- ---------
Income from discontinued operations -- 275 308,145
--------- --------- ---------
Extraordinary Loss on early extinguishment
of debt (net of income tax benefit of $238) -- -- (443)
--------- --------- ---------
Cummulative effect of change in accounting
principle (net of taxes) -- (182) --
--------- --------- ---------
Net income $ 12,968 $ 13,231 $ 326,237
========= ========= =========
- --------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Continued...
F-4
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Earnings per share
Basic earnings per share:
Continuing operations $0.46 $ 0.47 $ 0.67
----- ------ ------
Discontinued operations:
Loss from operations -- (0.03) (0.30)
Gain on sale -- 0.04 11.50
----- ------ ------
-- 0.01 11.20
----- ------ ------
Extraordinary item -- -- (0.02)
----- ------ ------
Cummulative effect of change in
accounting principle -- (0.01) --
----- ------ ------
Net income $0.46 $ 0.47 $11.85
===== ====== ======
Diluted earnings per share:
Continuing operations $0.43 $ 0.43 $ 0.62
----- ------ ------
Discontinued operations:
Loss from operations -- (0.03) (0.27)
Gain on sale -- 0.04 10.56
----- ------ ------
-- 0.01 10.29
----- ------ ------
Extraordinary item -- -- (0.01)
----- ------ ------
Cummulative effect of change in
accounting principle -- (0.01) --
----- ------ ------
Net income $0.43 $ 0.43 $10.90
===== ====== ======
- --------------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income
(In thousands)
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Net income $12,968 $13,231 $326,237
Other comprehensive income (loss):
Foreign currency translation adjustment 4,693 (1,193) (4,034)
Reclassification adjustment for foreign
currency losses included in net income -- -- 5,146
------- ------- --------
Comprehensive income $17,661 $12,038 $327,349
======= ======= ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share and per share amounts)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock Accumulated
----------------- Other
Number Additional Comprehensive
of Paid-in Retained Income Treasury
Shares Amount Capital Earnings (Loss) Stock Total
- ---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 32,015,771 $ 320 $ 76,440 $ 142,270 $(2,607) $(29,983) $ 186,440
Net income -- -- -- 326,237 -- -- 326,237
Partial liquidation distribution -- -- -- (384,829) -- -- (384,829)
Cash dividends ($.16 per share) -- -- -- (4,342) -- -- (4,342)
Translation adjustment -- -- -- -- (4,034) -- (4,034)
Reclassification adjustment for
foreign currency losses
included in net income -- -- -- -- 5,146 -- 5,146
Sales of 1,929,248 treasury shares
pursuant to options -- -- (904) -- -- 11,193 10,289
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2000 32,015,771 320 75,536 79,336 (1,495) (18,790) 134,907
Net income -- -- -- 13,231 -- -- 13,231
Cash dividends ($0.055 per share) -- -- -- (1,549) -- -- (1,549)
Translation adjustment -- -- -- -- (1,193) -- (1,193)
Purchase of 1,788,800 treasury
shares -- -- -- -- -- (7,776) (7,776)
Sales of 1,263,885 treasury
shares pursuant to options -- -- (3,631) -- -- 6,738 3,107
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2001 32,015,771 320 71,905 91,018 (2,688) (19,828) 140,727
Net income -- -- -- 12,968 -- -- 12,968
Cash dividends ($0.095 per share) -- -- -- (2,663) -- -- (2,663)
Translation adjustment -- -- -- -- 4,693 -- 4,693
Purchase of 1,248,407 treasury
shares -- -- -- -- -- (6,933) (6,933)
Sales of 873,921 treasury
shares pursuant to options -- -- (2,055) -- -- 4,647 2,591
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2002 32,015,771 320 69,850 101,323 2,005 (22,114) 151,383
========== === ====== ======= ===== ======= =======
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands, except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities:
Income from continuing operations $ 12,968 $ 13,138 $ 18,535
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities
Depreciation, depletion, and amortization 20,009 17,427 17,000
Equity in income of joint ventures (531) (28) (470)
Minority interest in net loss of subsidiary (164) (59) --
Increase (decrease) in allowance for doubtful accounts 515 (105) (183)
Increase in deferred income taxes 2,882 988 124
Gain on sale of depreciable assets (11) (368) (212)
(Increase) decrease in current assets, net of effects of acquisitions:
Accounts receivable (2,133) (601) 4,918
Income taxes receivable 2,403 (120) --
Inventories (585) (4,265) (3,303)
Prepaid expenses 149 1,727 245
Increase (decrease) in current liabilities, net of effects of acquisitions:
Accounts payable 5,051 (627) 527
Accrued income taxes -- (5,546) (1,745)
Accrued liabilities (1,805) 564 127
Increase in other noncurrent assets (3,026) -- --
Increase in other noncurrent liabilities 866 809 2,252
--------- --------- ---------
Net cash provided by operating activities of continuing operations 36,588 22,934 37,815
--------- --------- ---------
Net cash provided by (used in) discontinued operations -- 1,614 (6,236)
--------- --------- ---------
Cash flow from investing activities:
Proceeds from sale of depreciable assets 187 530 1,460
Net proceeds from sale of absorbent polymers segment before taxes -- -- 654,581
Tax payments related to the absorbent polymers segment sale -- (130,365) (75,587)
Acquisition of land, mineral reserves, and depreciable assets (16,223) (14,730) (14,975)
(Increase) decrease in investments in and advances to joint ventures 1,331 (547) (3,095)
Acquisitions (16,982) -- --
Increase in other assets (16) (53) (4,524)
--------- --------- ---------
Net cash provided by (used in) investing activities (31,703) (145,165) 557,860
--------- --------- ---------
Cash flow from financing activities:
Proceeds from issuance of debt 28,100 -- 7,604
Principal payments of debt (23,172) (39,131) (46,804)
Proceeds from sales of treasury stock 2,591 3,107 10,289
Purchases of treasury stock (6,933) (7,776) --
Partial liquidation distribution -- -- (384,829)
Premium paid for early extinguishment of debt -- -- (443)
Cumulative effect of change in accounting principle -- (182) --
Change in minority interest 256 608 --
Dividends paid (2,663) (1,549) (4,342)
--------- --------- ---------
Net cash used in financing activities (1,821) (44,923) (418,525)
--------- --------- ---------
Effect of foreign currency rate changes on cash 2,213 (890) 2,325
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 5,277 (166,430) 173,239
--------- --------- ---------
Cash and cash equivalents at beginning of year 10,320 176,750 3,511
--------- --------- ---------
Cash and cash equivalents at end of year $ 15,597 $ 10,320 $ 176,750
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 671 $ 2,540 $ 5,163
========= ========= =========
Income taxes (net of refunds) $ 1,632 $ 134,151 $ 88,762
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies
Company Operations
AMCOL International Corporation (the Company) operates in two principal
areas of activity: minerals and environmental. The Company also operates a
transportation business which includes for delivery of its own products. In
2002, the Company's revenues were derived 55% from minerals, 34% from
environmental and 11% from transportation operations. The Company's sales in
2002 were approximately 70% domestic and 30% outside of the United States.
Further descriptions of the Company's products, its principal markets and the
relative significance of its operations are included in Note 3, "Business
Segment and Geographic Area Information."
During 2001, the Company disposed of its U.K. metalcasting business and
completed the sale and closure of its U.K. cat litter operations. During 2000,
the Company sold its absorbent polymers business. The Company has reclassified
the net assets and results of these operations as discontinued operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its foreign and domestic subsidiaries. All subsidiaries greater than
50% owned by the Company are consolidated. The Company's ownership interests in
the U.K., Mexican, Indian, and Egyptian ventures range between 20% and 50%.
Accordingly, these investments are accounted for using the equity method. The
Company's ownership interest in the Japanese investment is less than 20% and is
recorded at cost. All material intercompany balances and transactions between
wholly owned subsidiaries, including profits on inventories, have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Translation of Foreign Currencies
The assets and liabilities of subsidiaries located outside of the
United States are translated into U.S. dollars at the rates of exchange at the
balance sheet dates. The statements of operations are translated at the weighted
average rates during the periods. Foreign exchange translation adjustments are
accumulated as a separate component of stockholders' equity, while foreign
currency transaction gains or losses are included in income.
Inventories
Inventories are valued at the lower of cost or net realizable value.
Cost is determined by the first-in, first-out (FIFO) or moving average methods.
Exploration costs are expensed as incurred. Costs incurred in removing
overburden and mining bentonite are capitalized as advance mining costs until
the bentonite from such mining area is transported to the plant site, at which
point the costs are included in crude bentonite stockpile inventory.
Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves are carried
at cost less accumulated depreciation. Depreciation is computed using the
straight-line method for substantially all of the assets. Certain other assets,
primarily field equipment, are depreciated on the units-of-production method.
Mineral rights and reserves are depleted using the units-of-production method.
F-8
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair
value of the net assets of acquired businesses. Prior to 2002, goodwill was
amortized on the straight-line method over periods of five to 10 years. The
Compnay adopted Statement of Financial Accounting Standards (SFAS) No. 142,
"Goodwill and Other Intangible Assets", effective January 1, 2002. Pursuant to
SFAS 142, goodwill is not subject to amortization, but is tested annually (or
more frequently if impairment indicators arise), for impairment. Other
intangibles, including trademarks and noncompete agreements, are amortized on
the straight-line method over the expected periods to be benefited, which extend
up to 10 years.
At the date of adoption of SFAS 142, the goodwill balance included in
the Company's consolidated balance sheet was not significant.
The adoption of SFAS 142's provisions relating to goodwill amortization
resulted in the Company discontinuing the amortization of goodwill effective
January 1, 2002. Goodwill amortization expense was not significant in 2001 and
2000.
Impairment of Long-Lived Assets
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net undiscounted cash
flows expected to be generated by the asset. If an asset is considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds the fair value. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less costs of
disposal.
Income Taxes
The Company and its U.S. subsidiaries file a consolidated tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect for the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Revenue Recognition
Product revenue is recognized when products are shipped to customers.
Allowances for discounts, rebates, and estimated returns are recorded at the
time of sale and are reported as a reduction in revenue.
Land Reclamation
The Company mines various minerals using a surface-mining process which
requires the removal of overburden. The Company is obligated to restore the land
comprising each mining site to its original condition at the completion of
mining activity.
The Company employs a continuous reclamation process and recognizes the
cost of ongoing site restoration activities as incurred. The estimated cost of
final reclamation is accrued as minerals are mined. The Company has undiscounted
reserves for future reclamation costs totaling $5,936 and $6,175 at December 31,
2002 and 2001, respectively (included in other long-term liabilities in the
consolidated balance sheets). The Company believes the reserves being recorded,
as determined by Company and consulting engineers, are adequate to reclaim
existing sites.
F-9
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Shipping Revenues and Costs
The Company reports shipping and handling costs that are passed on to
customers as sales revenue and cost of sales in the consolidated statements of
operations.
Research and Development
Research and development costs are included in general, selling and
administrative expenses and amounted to approximately $5,953, $5,039 and $4,675
for the years ended December 31, 2002, 2001 and 2000, respectively.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing net income by the weighted average common shares
outstanding after consideration of the dilutive effect of stock options. A
reconciliation between the number of shares used to compute basic and diluted
earnings per share follows:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Weighted average of common shares
outstanding for the year 28,133,795 28,193,234 27,523,157
Dilutive impact of stock options 2,014,725 2,412,826 2,433,533
---------- ---------- ----------
Weighted average of common and common
equivalent shares for the year 30,148,520 30,606,060 29,956,690
========== ========== ==========
Common shares outstanding at December 31 27,881,903 28,256,389 28,781,304
========== ========== ==========
- --------------------------------------------------------------------------------
Stock Option Plans
The Company has adopted the disclosure only provisions of SFAS 123,
"Accounting for Stock-Based Compensation," but applies the intrinsic value-based
method of accounting prescribed by Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its fixed plan stock options. As
such, compensation expense is recorded on the grant date only if the market
price of the underlying stock exceeds the exercise price. Under the Company's
option plans, stock options are granted at exercise prices that equal the market
value of the underlying common stock on the date of grant. Therefore, no
compensation expense related to stock options is recorded in the consolidated
statements of operations.
SFAS 123 established accounting and disclosure requirements using a
fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS 123, the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and has adopted only
the disclosure requirements of SFAS 123.
F-10
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
The following table illustrates the effect on net income and earnings
per share if the fair-value-based recognition provisions of SFAS 123 had been
applied to all outstanding and unvested awards in each period:
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Net income, as reported $12,968 $13,231 $326,237
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 781 652 680
------- ------- --------
Pro forma net income $12,187 $12,579 $325,557
======= ======= ========
Earnings per share:
Basic - as reported $ 0.46 $ 0.47 $ 11.85
Basic - pro forma $ 0.43 $ 0.45 $ 11.83
Diluted - as reported $ 0.43 $ 0.43 $ 10.90
Diluted - pro forma $ 0.40 $ 0.41 $ 10.87
- --------------------------------------------------------------------------------
Derivative Instruments and Hedging Activities
The Company occasionally uses derivative financial instruments
(principally interest rate swaps or options) to manage its exposure to changes
in interest rates. The Company does not use derivative instruments for trading
or other speculative purposes. The Company had no derivative financial
instruments outstanding at December 31, 2002.
Following the adoption of SFAS 133 on January 1, 2001, all derivatives
are recognized as assets or liabilities on the consolidated balance sheet at
their fair value. Changes in the fair value of derivative instruments are
reported in earnings or in other comprehensive income depending on the use of
the derivative and whether it qualifies for hedge accounting. Gains and losses
resulting from changes in the fair value of a derivative that is designated as a
hedge and is highly effective in achieving offsetting changes in the fair value
or cash flows of the hedged item are included in operations in the same period
as the hedged item affects earnings. Gains and losses resulting from changes in
the fair value of a derivative that does not qualify for hedge accounting are
included in operations in the period they occur.
The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk-management objective and
strategy for undertaking various hedge and other transactions involving
derivative instruments. The Company also formally assesses, both at the hedge's
inception and on an ongoing basis, whether the derivatives that are used in
hedging transactions are highly effective in offsetting changes in fair values
or cash flows of hedged items. When it is determined that a derivative is not
highly effective as a hedge or that it has ceased to be a highly effective
hedge, the Company discontinues hedge accounting prospectively.
For the year ended December 31, 2000, prior to the adoption of SFAS No,
133, the Company had entered into an interest rate swap agreement to reduce its
exposure to market risks from changing interest rates. Prior to the adoption of
SFAS No, 133, the differential to be paid or received under the terms of the
interest rate swap was accrued and recognized in interest expense.
Reclassifications
Certain items in the 2001 and 2000 consolidated financial statements
have been reclassified to conform with the consolidated financial statement
presentation for 2002.
F-11
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(2) Discontinued Operations
In 2001, the Company sold its U.K. metalcasting business to a group
comprised in part of former management of the business. The Company did not
receive any proceeds from the sale. Included in the sale were certain machinery
and equipment. The acquirer entered into a license agreement for the right to
use certain trademarks for a period of ten years, and will lease certain land
and buildings from the Company. The U.K. metalcasting business was a component
entity of the Company's minerals segment.
The Company recognized a gain related to the disposal of discontinued
operations of $1,154 (including a tax benefit of $6,000) in 2001. The tax
benefit recognized in 2001 included a reduction of previously recognized tax
reserves.
In 2000 the Company announced its intention to close its U.K. cat
litter business. Certain assets used in the business were sold to various
outside parties for cash proceeds of $720. The closure was completed in 2001.
The U.K. cat litter business was a component of the Company's minerals segment.
In 2000, the Company sold its absorbent polymers segment to BASF AG.
The transaction closed on June 1, 2000, at which time the Company received gross
proceeds of approximately $656,500. The sale resulted in a pretax gain of
approximately $525,300 ($316,300 after income taxes of approximately $209,000),
net of costs incurred in connection with the sale. The net proceeds from the
sale transaction were used to fund a partial liquidation distribution to the
Company's shareholders on June 30, 2000.
The consolidated financial statements have been reclassified to report
separately the net assets and operating results of the U.K. metalcasting and cat
litter business and the absorbent polymers segment for all periods presented.
Summary operating results for 2001 and 2000 for the operations that
were discontinued were as follows:
- --------------------------------------------------------------------------------
U.K. metalcasting and cat litter businesses 2001 2000
- --------------------------------------------------------------------------------
Net sales $ 8,760 $ 18,550
Operating loss (1,174) (14,490)
Income tax expense (benefit) (384) 378
Net loss (879) (15,232)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Absorbent polymers segment 2001 2000*
- --------------------------------------------------------------------------------
Net sales $ -- $86,000
Operating profit -- 12,436
Income tax expense -- 4,639
Net income -- 7,047
- --------------------------------------------------------------------------------
*The 2000 information is for five months.
In 2000, the Company accrued $6,500 for the settlement of litigation in
the U.K. In 2001, the suit was settled for approximately that amount.
A portion of the Company's interest expense has been allocated to
discontinued operations based upon the debt balances attributable to these
operations. Net interest expense allocated to discontinued operations was $199
and $1,261 in 2001 and 2000, respectively.
F-12
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(3) Business Segment and Geographic Area Information
The Company operates in two principal business segments: minerals and
environmental. The Company also operates a transportation business. The minerals
segment mines, processes and distributes clays and products with similar
applications to various industrial and consumer markets. The environmental
segment processes and distributes clays and products with similar applications
for use as a moisture barrier in commercial construction, landfill liners and in
a variety of other industrial and commercial applications. The transportation
segment includes a long-haul trucking business and a freight brokerage business,
which provide services to both the Company's plants and outside customers.
The Company identifies segments based on management responsibility and
the nature of the business activities of each component of the Company.
Intersegment sales are insignificant, other than intersegment shipping, which is
disclosed in the following table. The Company measures segment profit based on
operating profit. Operating profit is defined as sales less cost of sales and
general, selling and administrative expenses related to a segment's operations.
The costs deducted to arrive at operating profit do not include interest or
income taxes.
Segment assets are those assets used in the Company's operations in
that segment. Corporate assets include cash and cash equivalents, corporate
leasehold improvements, the nanocomposite plant investment and other
miscellaneous equipment.
F-13
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following summaries set forth certain financial information by
business segment and geographic area as of and for the years ended December 31,
2002, 2001 and 2000.
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Business Segment:
Revenues:
Minerals $ 171,543 $ 149,945 $ 163,474
Environmental 105,926 103,766 98,010
Transportation 32,509 33,133 34,036
Intersegment shipping (11,105) (11,556) (11,378)
--------- --------- ---------
Total $ 298,873 $ 275,288 $ 284,142
========= ========= =========
Operating profit (loss):
Minerals $ 15,870 $ 14,697 $ 21,296
Environmental 14,373 15,154 11,594
Transportation 967 1,363 1,477
Corporate (11,552) (12,649) (16,397)
--------- --------- ---------
Total $ 19,658 $ 18,565 $ 17,970
========= ========= =========
Assets:
Minerals $ 128,566 $ 106,391 $ 109,681
Environmental 65,783 65,216 57,691
Transportation 1,895 1,282 1,791
Corporate 25,584 22,332 200,516
Discontinued operations (net
liabilities) -- 1,109 (3,912)
--------- --------- ---------
Total $ 221,828 $ 196,330 $ 365,767
========= ========= =========
Depreciation, depletion and amortization:
Minerals $ 10,840 $ 9,984 $ 10,046
Environmental 6,615 4,820 4,153
Transportation 58 37 45
Corporate 2,496 2,586 2,756
--------- --------- ---------
Total $ 20,009 $ 17,427 $ 17,000
========= ========= =========
Capital expenditures:
Minerals $ 8,263 $ 8,431 $ 7,935
Environmental 6,174 5,691 5,014
Transportation 145 41 56
Corporate 1,641 567 1,970
--------- --------- ---------
Total $ 16,223 $ 14,730 $ 14,975
========= ========= =========
Research and development expenses:
Minerals $ 2,632 $ 1,677 $ 1,234
Environmental 2,051 1,777 1,453
Corporate 1,270 1,585 1,988
--------- --------- ---------
Total $ 5,953 $ 5,039 $ 4,675
========= ========= =========
- --------------------------------------------------------------------------------
Continued...
F-14
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(3) Business Segment and Geographic Area Information (Continued)
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Geographic area:
Sales to unaffiliated customers shipped from:
North America $234,013 $237,767 $247,539
Europe 52,715 27,435 25,160
Asia 10,158 8,116 8,746
Australia 1,987 1,970 2,697
-------- -------- --------
Total $298,873 $275,288 $284,142
======== ======== ========
Operating profit from:
North America $ 13,457 $ 13,598 $ 16,029
Europe 5,345 4,482 658
Asia 417 199 917
Australia 439 286 366
-------- -------- --------
Total $ 19,658 $ 18,565 $ 17,970
======== ======== ========
Identifiable assets in:
North America $144,068 $149,370 $333,062
Europe 57,579 28,651 22,006
Asia 18,175 15,507 12,211
Australia 2,006 1,693 2,400
Discontinued operations -- 1,109 (3,912)
-------- -------- --------
Total $221,828 $196,330 $365,767
======== ======== ========
- --------------------------------------------------------------------------------
(4) Inventories
Inventories at December 31 consisted of:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Advance mining $ 2,836 $ 1,872
Crude stockpile inventories 11,330 11,524
In-process inventories 15,142 12,863
Other raw material, container, and supplies inventories 9,546 8,334
------- -------
$38,854 $34,593
======= =======
- --------------------------------------------------------------------------------
(5) Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment and mineral rights and reserves consisted of
the following:
- --------------------------------------------------------------------------------
December 31, Depreciation/
---------------------- Amortization
2002 2001 Annual Rates
- --------------------------------------------------------------------------------
Mineral rights and reserves $ 4,269 $ 4,970
Other land 4,609 4,323
Buildings and improvements 47,059 40,995 4.9% to 25.0%
Machinery and equipment 156,940 140,125 10.0% to 50.0%
-------- --------
$212,877 $190,413
======== ========
- --------------------------------------------------------------------------------
Depreciation and depletion were charged to income as follows:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Depreciation expense $19,064 $16,247 $16,256
Depletion expense 806 1,085 610
------- ------- -------
$19,870 $17,332 $16,866
======= ======= =======
- --------------------------------------------------------------------------------
F-15
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(6) Income Taxes
Total income tax expense (benefit) for the years ended December 31,
2002, 2001 and 2000 was allocated as follows:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Income from continuing operations $ 6,916 $ 6,155 $ 7,155
Discontinued operations -- (6,294) 213,980
Extraordinary item -- -- (238)
Cumulative effect of change in accounting
principle -- (113) --
--------- --------- ---------
$ 6,916 $ (252) $ 220,897
========= ========= =========
- --------------------------------------------------------------------------------
Domestic and foreign components of income from continuing operations
before income taxes, equity in income of joint ventures and minority interest
are shown below:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Income from continuing operations before
income taxes, equity in income of joint
ventures and minority interest
Domestic $12,266 $14,377 $23,032
Foreign 6,923 4,829 2,188
------- ------- -------
$19,189 $19,206 $25,220
======= ======= =======
- --------------------------------------------------------------------------------
The components of the provision (benefit) for income taxes attributable
to income from continuing operations before income taxes, equity in income of
joint ventures and minority interest for the years ended December 31, 2002, 2001
and 2000 consisted of:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Provision (benefit) for income taxes:
Federal:
Current $ 647 $ 2,379 $ 4,622
Deferred 2,641 722 512
State:
Current 741 697 712
Deferred 264 72 51
Foreign:
Current 2,647 2,091 1,697
Deferred (24) 194 (439)
------- ------- -------
$ 6,916 $ 6,155 $ 7,155
======= ======= =======
- --------------------------------------------------------------------------------
The Company's federal income tax returns have been audited through
1998.
F-16
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(6) Income Taxes (Continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2002 and
2001 were as follows:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Deferred tax assets attributable to:
Accounts receivable, due to allowance
for doubtful accounts $ 436 $ 576
Inventories 1,013 973
Accrued pension liability 3,593 2,710
Intangible assets, due to differences
in amortization 1,815 2,046
Capital losses carried forward -- 546
Other 2,296 4,818
------- -------
Total deferred tax assets 9,153 11,669
Deferred tax liabilities attributable to:
Plant and equipment, due to differences
in depreciation (2,132) (865)
Land and mineral reserves, due to
differences in depletion (1,527) (2,056)
------- -------
Total deferred tax liabilities (3,659) (2,921)
------- -------
Net deferred tax assets $ 5,494 $ 8,748
======= =======
- --------------------------------------------------------------------------------
The following analysis reconciles the statutory Federal income tax rate
to the effective tax rates related to income from continuing operations before
income taxes, equity in income of joint ventures and minority interest:
- --------------------------------------------------------------------------------------------------------
2002 2001 2000
----------------- ----------------- --------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
- --------------------------------------------------------------------------------------------------------
Provision for income taxes at
U.S. statutory rates $6,716 35.0% $6,722 35.0% $ 8,827 35.0%
Increase (decrease) in taxes resulting from:
Percentage depletion (742) (3.9%) (875) (4.6%) (1,190) (4.7%)
State taxes 482 2.5% 453 2.4% 463 1.8%
Export incentives (126) (0.8%) (155) (0.8%) (632) (2.5%)
Other 586 3.2% 10 0.1% (313) (1.2%)
------ ----- ------ ----- ------- -----
$6,916 36.0% $6,155 32.1% $ 7,155 28.4%
====== ===== ====== ===== ======= =====
- --------------------------------------------------------------------------------------------------------
(7) Long-term Debt
Long-term debt consisted of the following:
- --------------------------------------------------------------------------------
December 31,
-----------------
2002 2001
- --------------------------------------------------------------------------------
Short-term debt supported by revolving credit agreement $12,600 $ 7,000
Industrial revenue bond 5,000 5,000
Other notes payable 573 1,245
18,173 13,245
Less: current portion 12,600 --
------- -------
$ 5,573 $13,245
======= =======
- --------------------------------------------------------------------------------
The Company has a committed $125,000 revolving credit agreement, which
matures October 31, 2003. As of December 31, 2002, there was $112,400 in
borrowing capacity available under the line of credit. The revolving credit
agreement is a multi-currency arrangement, which allows the Company to borrow at
an adjusted LIBOR rate plus .25% to
F-17
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(7) Long-term Debt (Continued)
..75%, depending upon debt to capitalization ratios and the amount of the credit
line used. The interest rate at December 31, 2002 was 1.69%.
At December 31, 2002 and 2001, the Company had outstanding standby
letters of credit of $13.4 million and $11.7 million, respectively. These
letters of credit typically serve to guarantee the Company's performance of its
obligations related to land reclamation and workers' compensation claims. The
Company has recognized the estimated costs of its obligations related to land
reclamation and workers' compensation claims in the accompanying consolidated
balance sheets as of December 31, 2002 and 2001.
During 2000, the Company borrowed $5,000 using an industrial revenue
bond to finance the construction of a plant in Butler, Georgia. The note, which
matures in 2015, has a variable interest rate and is secured by the plant
assets. At December 31, 2002, the interest rate was 1.65%.
Maturities of long-term debt outstanding at December 31, 2002, were as
follows:
- --------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
- --------------------------------------------------------------------------------
Short-term debt supported by
revolving credit agreement $12,600 $ -- $ -- $ -- $ -- $ --
Industrial revenue bond and other
notes payable -- -- -- -- -- 5,573
------- ---- ---- ---- ---- ------
$12,600 $ -- $ -- $ -- $ -- $5,573
======= ==== ==== ==== ==== ======
- --------------------------------------------------------------------------------
The estimated fair value of the above notes at December 31, 2002, was
approximately equal to their carrying amounts based on discounting future cash
payments using current market interest rates for loans with similar terms and
maturities.
All loan agreements include covenants that require the maintenance of
specific minimum amounts of working capital, tangible net worth and various
financial ratios, and limit additional borrowings and guarantees. The Company
was in compliance with these financial covenants at December 31, 2002. The
Company is not required to maintain compensating balances.
During 2000, the Company renegotiated its debt covenants to reflect the
sale of the absorbent polymers segment. As a result of this transaction, the
payment of $25,000 in term notes was accelerated resulting in an extraordinary
loss from the early extinguishment of debt amounting to $443, net of income
taxes.
(8) Acquisitions
On May 1, 2002, the Company acquired all of the outstanding stock of
Colin Stewart Minchem Limited. (CSM), a specialty minerals and chemical company
located in the United Kingdom, in exchange for cash. The aggregate purchase
price was $15,507. The purchase was financed utilizing the Company's revolving
credit facility.
CSM supplies intermediate products, industrial minerals, inorganic
chemicals, and additives to customers operating in the laundry detergent,
packaging, oil exploration and water treatment markets. The acquisition of CSM
provides an additional platform for the Company to expand its global operations
and presence. The results of CSM's operations have been included in the
consolidated financial statements from the acquisition date.
F-18
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following tables summarize the estimated fair values of the assets
acquired and liabilities assumed at the date of the acquisition and unaudited
pro forma results of continuing operations as if the acquisition of CSM had
occurred at the beginning of each year presented. The unaudited pro forma
information is not necessarily indicative of the combined results that would
have occurred had the acquisition taken place at the beginning of the periods
presented, nor is it necessarily indicative of future results.
- --------------------------------------------------------------------------------
At April 30,
2002
- --------------------------------------------------------------------------------
Current assets $ 6,263
Fixed assets 10,520
Goodwill 4,172
-------
Total assets acquired $20,955
-------
Current liabilities $ 3,023
Other liabilities 2,425
-------
Total liabilities assumed $ 5,448
-------
Net assets acquired $15,507
=======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pro Forma Pro Forma
Twelve Months Ended Twelve Months Ended
December 31, December 31,
------------------- -------------------
2002 2001
- --------------------------------------------------------------------------------
Net sales $309,532 $307,265
Income from continuing operations 13,683 15,283
Net income 13,683 15,376
Basic earnings per share 0.49 0.55
Diluted earnings per share 0.45 0.50
- --------------------------------------------------------------------------------
The Company also completed another less significant acquisition during
2002. Had this acquisition been completed on January 1, 2000, the Company's
operating results would not have been materially different than those reported.
(9) Market Risks and Financial Instruments
As a multinational corporation that manufactures and markets products
in countries throughout the world, the Company is subject to certain market
risks, including those related to foreign currency, interest rates and
government actions. The Company uses a variety of practices to manage these
market risks, including, when considered appropriate, derivative financial
instruments. The Company uses derivative financial instruments only for risk
management and does not use them for trading or speculative purposes.
Exchange Rate Sensitivity
The Company is exposed to potential gains or losses from foreign
currency fluctuations affecting net investments and earnings denominated in
foreign currencies. The Company's primary exposures are to changes in exchange
rates for the U.S. dollar versus the euro, the British pound, the Canadian
dollar, the Australian dollar, the Mexican peso, the Thai baht, the Chinese
renmimbi and the Korean won. The Company also has significant exposure to
changes in exchange rates between the British pound and the Euro.
F-19
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The Company's various currency exposures often offset each other,
providing natural hedges against currency risk. Periodically, specific foreign
currency transactions (e.g. inventory purchases, royalty payments, etc.) are
hedged with forward contracts to reduce the foreign currency risk. As of
December 31, 2002, the Company did not have any material outstanding foreign
currency contracts.
(9) Market Risks and Financial Instruments (continued)
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instruments' actual cash flows are denominated in U.S.
dollars (US), Chinese renminbi (RMB) and Thai baht (THB) as indicated in
parentheses.
- ---------------------------------------------------------------------------------------------------
Expected Maturity Date
-----------------------------------------------------------------
Fair
2003 2004 2005 2006 2007 Thereafter Total Value
- ---------------------------------------------------------------------------------------------------
(US$ equivalent in thousands)
Short-term debt:
Variable rate (US) $12,600 $ -- $ -- $ -- $ -- $ -- $12,600 $12,600
Average interest rate 2.2% -- -- -- -- -- -- --
Long-term debt:
Variable rate (US) -- -- -- -- -- 5,000 5,000 5,000
Average interest rate -- -- -- -- -- 1.5% -- --
Variable rate (RMB) -- -- -- -- -- 144 144 144
Average interest rate -- -- -- -- -- 5.8% -- --
Variable rate (THB) -- -- -- -- -- 429 429 429
Average interest rate -- -- -- -- -- 4.5% -- --
------- ---- ---- ---- ---- ------ ------- -------
Total $12,600 $ -- $ -- $ -- $ -- $5,573 $18,173 $18,173
======= ==== ==== ==== ==== ====== ======= =======
- ---------------------------------------------------------------------------------------------------
The Company periodically uses interest rate swaps to manage interest
rate risk on debt securities. These instruments allow the Company to change
variable rate debt into fixed rate or fixed rate debt into variable rate.
The Company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
Company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company currently believes
its allowance for doubtful accounts is sufficient to cover customer credit
risks. The Company's accounts receivable financial instruments are carried at
amounts that approximate fair value.
(10) Leases
The Company has several noncancelable leases for railroad cars,
trailers, computer software, office equipment, certain automobiles, and office
and plant facilities. Total rent expense under operating lease agreements was
approximately $4,099, $3,672 and $2,928 in 2002, 2001 and 2000, respectively.
Additionally, the Company has two domestic facilities that are being subleased.
F-20
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(10) Leases (Continued)
The following is a schedule of future minimum lease payments for
operating leases (with initial terms in excess of one year) and related sublease
income as of December 31, 2002:
- --------------------------------------------------------------------------------
Minimum Lease
Payments Sublease
--------------------------------- Rental
Domestic Foreign Total Income
- --------------------------------------------------------------------------------
Year ending December 31:
2003 $ 2,600 $ 76 $ 2,676 $ 502
2004 2,238 60 2,298 289
2005 2,007 35 2,042 298
2006 1,550 14 1,564 306
2007 1,487 5 1,492 316
Thereafter 848 390 1,238 187
------- ----- ------- ------
Total $10,730 $ 580 $11,310 $1,898
======= ===== ======= ======
- --------------------------------------------------------------------------------
(11) Employee Benefit Plans
The Company has noncontributory pension plans covering substantially
all of its domestic employees. The benefits are based upon years of service and
qualifying compensation. The Company's funding policy is to contribute annually
the maximum amount, calculated using the actuarially determined entry age normal
method, that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to services to date, but
also for those expected to be earned in the future.
The following tables set forth pension obligations included in the
Company's balance sheet at December 31, 2002 and 2001:
- --------------------------------------------------------------------------------
Pension Benefits
---------------------
2002 2001
- --------------------------------------------------------------------------------
Change in benefit obligations:
Beginning benefit obligation $ 22,974 $ 21,215
Service cost 1,157 1,053
Interest cost 1,634 1,556
Effect of plan amendments -- 43
Actuarial loss 1,570 156
Benefits paid (943) (1,049)
-------- --------
Ending benefit obligation $ 26,392 $ 22,974
======== ========
Change in plan assets:
Beginning fair value $ 20,169 $ 24,573
Actual return (1,314) (3,355)
Company contribution -- --
Benefits paid (943) (1,049)
-------- --------
Ending fair value $ 17,912 $ 20,169
======== ========
Funded status of the plan $ (8,480) $ (2,805)
Unrecognized actuarial and investment (gain) loss, net 3,772 (888)
Prior service cost 441 471
Transition asset (361) (498)
-------- --------
Accrued pension cost liability $ (4,628) $ (3,720)
======== ========
- --------------------------------------------------------------------------------
F-21
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(11) Employee Benefit Plans (Continued)
Pension cost was comprised of:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 1,157 $ 1,053 $ 1,311
Interest cost on accumulated benefit obligation 1,634 1,556 1,593
Expected return on plan assets (1,777) (2,170) (1,994)
Net amortization and deferral (106) (377) (218)
------- ------- -------
Net periodic pension cost $ 908 $ 62 $ 692
Curtailment gain -- -- (1,104)
------- ------- -------
Net periodic pension cost (income) after
curtailment $ 908 $ 62 $ (412)
======= ======= =======
- --------------------------------------------------------------------------------
The curtailment in 2000 was related to the sale of the absorbent
polymers segment. All of the domestic absorbent polymers' employees were given
full vesting and paid their accrued pension benefit.
The valuations of the Company's pension benefit plans were performed as
of October 1, 2002 and 2001. The plan assets are invested in common stocks,
corporate bonds and notes, and guaranteed income contracts purchased from
insurance companies.
The key actuarial assumptions used to measure benefit obligations in
the Company's pension plans were as follows: the weighted average discount rate
used in determining the actuarial present value of the projected benefit
obligation was 6.75% in 2002 and 7.25% in 2001; the rate of increase in future
compensation levels was 5.75% in both years; and the expected long-term rate of
return on plan assets was 9.0% for both years. For 2003, the Company intends to
revise the rate of return on plan assets assumption to 8.75%.
In addition to the qualified plans outlined above, the Company sponsors
a supplementary pension plan that provides benefits in excess of qualified plan
limitations for certain employees. The unfunded accrued liability for this plan
was $1,948 and $1,741 at December 31, 2002 and 2001, respectively.
The Company also has a savings plan for its U.S. personnel. The Company
makes annual contributions in an amount equal to an employee's contributions up
to a maximum of 4% of the employee's annual earnings. Company contributions are
made using Company stock purchased on the open market. Company contributions
under the savings plan were $1,251 in 2002, $1,223 in 2001 and $1,349 in 2000.
The Company also has a deferred compensation plan and a 401(k) restoration plan
for its executives.
The foreign pension plans, which are not subject to United States
pension funding laws, are funded using individual annuity contracts and,
therefore, are not included in the information reflected above.
(12) Stock Option Plans
The Company has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's stock option plans been determined using the fair value method of
accounting described in SFAS 123, the Company's net income would have been
changed to the pro forma amounts indicated in note 1 of notes to consolidated
financial statements.
F-22
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(12) Stock Option Plans (Continued)
For purposes of calculating the compensation cost consistent with SFAS
123, the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2002, 2001 and 2000:
- --------------------------------------------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Risk-free interest rate 4.5% 5.1% 6.4%
Expected life of option 6 yrs. 6 yrs. 7 yrs.
Expected dividend yield of stock 0.9% 1.1% 1.0%
Expected volatility of stock 45% 52% 50%
- --------------------------------------------------------------------------------
In connection with the sale of the Company's absorbent polymers
business to BASF AG, and the payment of a partial liquidation distribution to
the Company's shareholders (See Note 2, "Discontinued Operations"), the number
of shares underlying outstanding options was increased and the option price per
share was reduced in order to reflect the effects of the Company's equity
restructuring on outstanding option awards. As a result, immediately following
the equity restructuring, the aggregate intrinsic value of each option equaled
the aggregate intrinsic value before the equity restructuring. Further, vesting
provisions and the option period of each original grant remained the same. These
adjustments to the number of shares and the option price per share were made
effective June 30, 2000, and the tables which follow separately display option
activity before and after the equity restructuring.
The 1983, 1987 and 1993 Plans
The Company has reserved shares of its common stock for issuance of
incentive and nonqualified stock options to its directors, officers and key
employees under its 1983 Incentive Stock Option Plan, 1993 Stock Plan and 1987
Nonqualified Stock Option Plan. Options awarded under these plans, which entitle
the optionee to one share of common stock, may be exercised at a price equal to
the fair market value of the underlying common stock at the time of grant.
Options awarded under these plans generally vest 40% after two years and
continue to vest at the rate of 20% per year for each year thereafter, until
they are fully vested, unless a different vesting schedule is established by the
Compensation Committee of the Board of Directors on the date of grant. Options
are exercisable as they vest and expire 10 years after the date of grant, except
in the event of termination, retirement or death of the optionee, or a change in
control of the Company.
These plans are expired as of December 31, 2000, though options that
were granted prior to expiration of the plans continue to be valid until the
individual option grants expire. Changes in options outstanding are summarized
as follows:
- --------------------------------------------------------------------------------------------------------------
December 31, 2002 December 31, 2001 December 31, 2000
---------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Expired Stock Option Plans Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------------------------------------
Options outstanding at January 1 2,531,037 $ 2.09 3,680,717 $ 1.94 1,478,256 $9.91
Adjustment due to equity restructuring -- -- -- -- 4,100,584 --
Exercised (640,958) 1.92 (1,107,934) 1.74 (1,835,392) 3.88
Cancelled (5,658) 2.23 (41,746) 1.78 (62,731) 5.81
--------- --------- ---------
Options outstanding at December 31 1,884,421 2.07 2,531,037 2.03 3,680,717 1.94
========= ========= =========
Options exercisable at December 31 1,725,105 1,981,388 2,558,277
========= ========= =========
Shares available for future grant at
December 31 -- -- --
========= ========= =========
- --------------------------------------------------------------------------------------------------------------
F-23
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(12) Stock Option Plans (Continued)
1998 Long-Term Incentive Plan
The Company reserved 2,900,000 shares of its common stock (after
adjustment for the equity restructuring related to the sale of the absorbent
polymers segment) for issuance to its officers, directors and key employees.
This plan provides for the award of incentive stock options, nonqualified stock
options, restricted stock, stock appreciation rights and phantom stock.
Different terms and conditions apply to each form of award made under the plan.
To date, only nonqualified stock options have been awarded. Options awarded
under this plan, which entitle the optionee to one share of common stock, may be
exercised at a price equal to the fair market value of the underlying common
stock at the time of grant. Options awarded under the plan generally vest 40%
after two years and continue to vest at the rate of 20% per year for each year
thereafter, until they are fully vested, unless a different vesting schedule is
established by the Compensation Committee of the Board of Directors on the date
of grant. Options are exercisable as they vest and expire 10 years after the
date of grant, except in the event of termination, retirement or death of the
optionee or a change in control of the Company. Changes in options outstanding
are summarized as follows:
- ----------------------------------------------------------------------------------------------------------
December 31, 2002 December 31, 2001 December 31, 2000
------------------- ------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
1998 Long-Term Incentive Plan Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------
Options outstanding at January 1 1,693,162 $2.66 1,574,447 $ 2.10 312,845 $9.64
Adjustment due to equity restructuring -- -- -- -- 1,117,187
Granted 307,450 6.63 326,050 4.95 288,500 3.88
Exercised (232,027) 1.84 (156,852) 1.75 (93,844) 5.51
Cancelled (37,391) 3.72 (50,483) 2.85 (50,241) 6.02
--------- --------- ---------
Options outstanding at December 31 1,731,194 3.46 1,693,162 2.66 1,574,447 2.10
========= ========= =========
Options exercisable at December 31 551,527 394,273 48,214
========= ========= =========
Shares available for future grant at
December 31 686,083 956,142 231,709
========= ========= =========
- ----------------------------------------------------------------------------------------------------------
All Stock Option Plans
The following table summarizes information about stock options
outstanding and exercisable at December 31, 2002:
- ------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------- ---------------------
Weighted
Average
Number Remaining
Range of exercisse prices of Contractual
Shares Life (Yrs).
- ------------------------------------------------------------------------------------------
$1.350 -- $1.786 990,417 5.03 $1.572 629,794 $1.574
1.830 -- 2.287 1,466,154 4.42 2.151 1,270,118 2.131
2.374 -- 6.000 866,694 6.09 3.729 376,720 2.762
6.650 -- 6.650 292,350 9.10 6.650 -- --
--------- ---------
Total 3,615,615 5.37 2.735 2,276,632 2.081
========= ========
- ------------------------------------------------------------------------------------------
F-24
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(13) Accrued Liabilities
Accrued liabilities at December 31 consisted of:
- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Accrued severance taxes $ 1,886 $ 2,329
Accrued employee costs 1,416 1,006
Accrued vacation pay 1,617 1,438
Accrued pension 4,628 3,720
Accrued bonus 2,842 3,655
Accrued product liability 1,256 1,157
Accrued commissions 1,193 1,738
Other 7,283 6,801
------- -------
$22,121 $21,844
======= =======
- --------------------------------------------------------------------------------
(14) Contingencies
The Company is party to a number of lawsuits arising in the normal
course of its business. The Company does not believe that any pending litigation
will have a material adverse effect on its consolidated financial position.
(15) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter in 2002 and 2001 are as
follows:
- --------------------------------------------------------------------------------
2002 Quarter
---------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
Minerals $33,690 $45,138 $46,502 $46,213
Environmental 18,493 28,026 33,216 26,191
Transportation 7,384 8,078 8,591 8,456
Intersegment shipping (2,226) (2,707) (3,113) (3,059)
------- ------- ------- -------
Net sales $57,341 $78,535 $85,196 $77,801
======= ======= ======= =======
Minerals $ 5,569 $ 8,427 $ 8,747 $ 9,164
Environmental 6,301 10,022 11,686 8,584
Transportation 783 819 881 885
======= ======= ======= =======
Gross profit $12,653 $19,268 $21,314 $18,633
======= ======= ======= =======
Minerals $ 2,217 $ 4,304 $ 4,386 $ 4,963
Environmental 939 4,582 5,950 2,902
Transportation 226 229 242 270
Corporate (2,759) (2,960) (2,979) (2,854)
======= ======= ======= =======
Operating profit $ 623 $ 6,155 $ 7,599 $ 5,281
======= ======= ======= =======
Net income $ 532 $ 4,062 $ 4,858 $ 3,516
======= ======= ======= =======
Basic earnings per share $ 0.02 $ 0.14 $ 0.17 $ 0.13
======= ======= ======= =======
Diluted earnings per share $ 0.02 $ 0.13 $ 0.16 $ 0.12
======= ======= ======= =======
- -------------------------------------------------------------------------------
F-25
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
2001 Quarter
-----------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
Minerals $38,837 $36,437 $38,205 $36,466
Environmental 20,113 27,576 30,549 25,528
Transportation 7,562 8,513 8,832 8,226
Intersegment shipping (2,134) (2,855) (3,468) (3,099)
------- ------- ------- -------
Net sales $64,378 $69,671 $74,118 $67,121
======= ======= ======= =======
Minerals $ 6,821 $ 7,021 $ 6,890 $ 6,857
Environmental 7,436 8,764 10,268 8,728
Transportation 803 904 954 859
======= ======= ======= =======
Gross profit $15,060 $16,689 $18,112 $16,444
======= ======= ======= =======
Minerals $ 3,677 $ 3,653 $ 3,528 $ 3,839
Environmental 2,680 4,052 5,374 3,048
Transportation 307 362 405 289
Corporate (3,530) (3,170) (2,949) (3,000)
======= ======= ======= =======
Operating profit $ 3,134 $ 4,897 $ 6,358 $ 4,176
======= ======= ======= =======
Income from continuing operations $ 3,054 $ 2,963 $ 4,345 $ 2,776
======= ======= ======= =======
Discontinued operations and
extraordinary loss $ (324) $ 44 $ (257) $ 630
======= ======= ======= =======
Net income $ 2,730 $ 3,007 $ 4,088 $ 3,406
======= ======= ======= =======
Basic earnings per share $ 0.09 $ 0.11 $ 0.15 $ 0.12
======= ======= ======= =======
Diluted earnings per share $ 0.08 $ 0.10 $ 0.14 $ 0.11
======= ======= ======= =======
- --------------------------------------------------------------------------------
(16) Business Realignment Charges
During 2000, the Company engaged an investment banking firm to help
management evaluate various strategic options to enhance shareholder value. The
Company engaged in significant discussions regarding the disposition of its
businesses, including the sale of certain parts and the potential spin-off of
the Nanocor, Inc. subsidiary. In the process, the Company incurred approximately
$2,400 in professional fees. These expenses have been included as a component of
business realignment and other charges.
The business realignment charges included the following:
- --------------------------------------------------------------------------------
2000
- --------------------------------------------------------------------------------
Expenses associated with business realignment activities $2,357
Income tax benefit associated with the above 907
------
Impact on income from continuing operations $1,450
======
Diluted earnings per share impact $(0.05)
======
- --------------------------------------------------------------------------------
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------
Additions
----------------------
Charged Balance
Balance at Charged to (credited) at end
beginning costs and to other Other charges of
Year Description of year expenses account (2) add (deduct) (1) year
- ----------------------------------------------------------------------------------------------------------
2002 Allowance for doubtful accounts $2,127 $1,287 $ -- $ (772) $ 2,642
====== ====== === ======= =======
2001 Allowance for doubtful accounts $2,232 $ 929 $ -- $(1,034) $ 2,127
====== ====== === ======= =======
2000 Allowance for doubtful accounts $2,415 $ 946 $(353) $ (776) $ 2,232
====== ====== === ======= =======
- ----------------------------------------------------------------------------------------------------------
(1) Bad debts written off.
(2) Disposition of business units.
F-26
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this annual report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 14, 2003
AMCOL INTERNATIONAL CORPORATION
By: /s/ Lawrence E. Washow
--------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John Hughes March 14, 2003
- -----------------------------------------------------
John Hughes
Chairman of the Board and Director
/s/ Lawrence E. Washow March 14, 2003
- -----------------------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
and Director
/s/ Gary L. Castagna March 14, 2003
- -----------------------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financial Officer;
Treasurer and Chief Accounting Officer
/s/ Arthur Brown March 14, 2003
- -----------------------------------------------------
Arthur Brown
Director
/s/ Daniel P. Casey March 14, 2003
- -----------------------------------------------------
Daniel P. Casey
Director
/s/ Robert E. Driscoll, III March 14, 2003
- -----------------------------------------------------
Robert E. Driscoll, III
Director
/s/ Jay D. Proops March 14, 2003
- -----------------------------------------------------
Jay D. Proops
Director
/s/ C. Eugene Ray March 14, 2003
- -----------------------------------------------------
C. Eugene Ray
Director
/s/ Clarence O. Redman March 14, 2003
- -----------------------------------------------------
Clarence O. Redman
Director
/s/ Dale E. Stahl March 14, 2003
- -----------------------------------------------------
Dale E. Stahl
Director
/s/ Audrey L. Weaver March 14, 2003
- -----------------------------------------------------
Audrey L. Weaver
Director
/s/ Paul C. Weaver March 14, 2003
- -----------------------------------------------------
Paul C. Weaver
Director
56
CERTIFICATION
I, Lawrence E. Washow, certify that:
1. I have reviewed this annual report on Form 10-K of AMCOL International
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report March 14, 2003; and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: March 14, 2003
------------------------------------
Lawrence E. Washow
Chief Executive Officer
57
CERTIFICATION
I, Gary Castagna, certify that:
1. I have reviewed this annual report on Form 10-K of AMCOL International
Corporation;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this annual report March 14, 2003; and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Dated: March 14, 2003
----------------------------------
Gary Castagna
Chief Financial Officer
58
INDEX TO EXHIBITS
Exhibit
Number
- ------
3.1 Restated Certificate of Incorporation of the Company (5), as amended (10),
as amended (16)
3.2 Bylaws of the Company (10)
4 Article Four of the Company's Restated Certificate of Incorporation (5),
as amended (16)
10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan (1); as
amended (3)
10.3 Lease Agreement for office space dated September 29, 1986, between the
Company and American National Bank and Trust Company of Chicago; (1) First
Amendment dated June 2, 1994 (8); Second Amendment dated June 2, 1997 (13)
10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan (2);
as amended (6)
10.9 AMCOL International Corporation Dividend Reinvestment and Stock Purchase
Plan (4); as amended (6)
10.10 AMCOL International Corporation 1993 Stock Plan, as amended and restated
(10)
10.11 Credit Agreement by and among AMCOL International Corporation and Harris
Trust and Savings Bank, individually and as agent, NBD Bank, LaSalle
National Bank and the Northern Trust Company dated October 4, 1994 (7);
First Amendment to Credit Agreement dated September 25, 1995 (9), Second
Amendment to Credit Agreement dated March 28, 1996 (-), Third Amendment to
Credit Agreement dated September 12, 1996 (11), Fourth Amendment to Credit
Agreement dated December 15, 1998 (18) and Fifth Amendment to Credit
Agreement dated May 26, 2000 (20)
10.15 AMCOL International Corporation 1998 Long-Term Incentive Plan (15), as
amended (21)
10.17 Asset and Stock Purchase Agreement dated November 22, 1999 by and between
the Registrant and BASF Aktiengesellschaft (19)**
10.26 Employment Agreement dated March 15, 2002 by and between Registrant and
Gary D. Morrison (22)
10.27 Employment Agreement dated March 15, 2002 by and between Registrant and
Peter M. Maul (22)
10.28 Employment Agreement dated March 15, 2002 by and between Registrant and
Gary Castagna (22)
10.29 Employment Agreement dated March 15, 2002 by and between Registrant and
Ryan F. McKendrick (22)
10.30 Employment Agreement dated March 15, 2002 by and between Registrant and
Lawrence E. Washow (22)
21 AMCOL International Corporation Subsidiary Listing
23 KPMG, LLP consent
99.10 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section
1350, dated November 1, 2002
** Portions of these exhibits have been omitted pursuant to a request for
confidential treatment.
- ----------------
(1) Exhibit is incorporated by reference to the Registrant's Form 10 filed
with the Securities and Exchange Commission on July 27, 1987.
(2) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1988.
(3) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1993.
(4) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1992.
(5) Exhibit is incorporated by reference to the Registrant's Form S-3 filed
with the Securities and Exchange Commission on September 15, 1993.
(6) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1993.
(7) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended
September 30, 1994.
(8) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1994.
(9) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended
September 30, 1995.
(10) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1995.
(11) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1996.
59
(13) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended June 30,
1997.
(15) Exhibit is incorporated by reference to the Registrant's Form S-8 (File
333-56017) filed with the Securities and Exchange Commission on June 4,
1998.
(16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended June 30,
1998.
(18) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended
September 30, 1999.
(19) Exhibit is incorporated by reference to the Registrant's Form 10-K filed
with the Securities and Exchange Commission for the year ended December
31, 1999.
(20) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended June 30,
2000.
(21) Exhibit is incorporated by reference to the Registrant's Form S-8 (File
333-68664) filed with the Securities and Exchange Commission on August 30,
2001.
(22) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed
with the Securities and Exchange Commission for the quarter ended March
31, 2002.
60