SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________________
Commission file number 0-15661
AMCOL INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-0724340
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1500 West Shure Drive, Suite 500, Arlington Heights, Illinois 60004-7803
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(Address of principal executive offices) (Zip Code)
(847) 394-8730
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(Registrant's telephone number, including area code)
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 whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Exchange Act).
Yes x No _____
----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 1, 2003
- ---------------------------------- -------------------------------
(Common stock, $.01 par value) 27,997,444 Shares
AMCOL INTERNATIONAL CORPORATION
INDEX
Page No.
--------
Part I - Financial Information
- ------------------------------
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2003 and December 31, 2002 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 2003 and 2002 2
Condensed Consolidated Statements of Comprehensive Income -
three months ended March 31, 2003 and 2002 2
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2003 and 2002 3
Notes to Condensed Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
Item 4 Controls and Procedures 13
Part II - Other Information
- ---------------------------
Item 6 Exhibits and Reports on Form 8-K 14
6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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ASSETS March 31 December 31,
2003 2002
(unaudited) *
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Current assets:
Cash $ 10,168 $ 15,597
Accounts receivable, net 56,440 48,870
Inventories 37,849 38,854
Prepaid expenses 5,373 4,270
Current deferred tax assets 2,844 2,825
Income taxes receivable 1,467 717
-------- --------
Total current assets 114,141 111,133
-------- --------
Investment in and advances to joint ventures 12,531 12,419
-------- --------
Property, plant, equipment, and mineral
rights and reserves:
Land and mineral rights and reserves 9,499 9,543
Depreciable assets 205,350 203,334
-------- --------
214,849 212,877
Less: accumulated depreciation 134,589 131,030
-------- --------
80,260 81,847
-------- --------
Other assets:
Goodwill 4,630 4,728
Intangible assets, net 460 474
Long-term prepayments and other assets 9,310 8,558
Deferred tax assets 2,661 2,669
-------- --------
17,061 16,429
-------- --------
$223,993 $221,828
======== ========
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LIABILITIES AND STOCKHOLDERS' EQUITY March 31 December 31,
2003 2002
(unaudited) *
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Current liabilities:
Current maturities of long-term debt $ 16,600 $ 12,600
Accounts payable 14,537 17,918
Accrued liabilities 22,672 22,121
-------- --------
Total current liabilities 53,809 52,639
-------- --------
Long-term debt 5,739 5,573
-------- --------
Minority interests in subsidiaries 624 615
Other liabilities 11,680 11,618
-------- --------
12,304 12,233
-------- --------
Stockholders' equity:
Common stock 320 320
Additional paid in capital 68,913 69,850
Retained earnings 103,412 101,322
Accumulated other comprehensive income 459 2,005
-------- --------
173,104 173,497
Less:
Treasury stock 20,963 22,114
-------- --------
152,141 151,383
-------- --------
$223,993 $221,828
======== ========
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* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
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Three Months Ended
March 31,
------------------------------
2003 2002
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Net sales $ 79,467 $ 57,341
Cost of sales 60,843 44,688
------------ ------------
Gross profit 18,624 12,653
General, selling and administrative expenses 14,294 12,030
------------ ------------
Operating profit 4,330 623
------------ ------------
Other income (expense):
Interest expense, net (80) (92)
Other, net 32 (30)
------------ ------------
(48) (122)
------------ ------------
Income before income taxes and equity 4,282 501
in income of joint ventures
Income tax expense 1,455 176
------------ ------------
Income before equity in income of 2,827 325
joint ventures
Income from joint ventures 103 204
Minority interest in net loss of subsidiary -- 3
------------ ------------
Net income $ 2,930 $ 532
============ ============
Weighted average common shares outstanding 27,994,263 28,454,530
============ ============
Weighted average common and common
equivalent shares outstanding 29,746,227 30,921,786
============ ============
Basic earnings per share $ 0.10 $ 0.02
============ ============
Diluted earnings per share $ 0.10 $ 0.02
============ ============
Dividends declared per share $ 0.030 $ 0.015
============ ============
'-------------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------------
2003 2002
- --------------------------------------------------------------------------------
Net income $ 2,930 $ 532
Other comprehensive income (loss):
Foreign currency translation adjustment (1,546) (384)
------- -----
Comprehensive income $ 1,384 $ 148
======= =====
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended
March 31,
----------------------
2003 2002
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Cash flow from operating activities:
Net income $ 2,930 $ 532
Adjustments to reconcile from net income to
net cash provided by (used in) operating
activities:
Depreciation, depletion, and amortization 4,492 4,152
Changes in assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in current assets (8,464) 2,866
Increase in noncurrent assets -- (3,172)
Decrease in current liabilities (2,828) (5,285)
Increase in noncurrent liabilities 61 638
Other (57) 517
-------- --------
Net cash provided by (used in)
operating activities (3,866) 248
-------- --------
Cash flow from investing activities:
Acquisition of land, mineral reserves,
and depreciable assets (3,489) (3,366)
Other (755) (123)
-------- --------
Net cash used in investing activities (4,244) (3,489)
-------- --------
Cash flow from financing activities:
Net change in outstanding debt 4,166 2,213
Proceeds from sales of treasury stock 528 877
Purchases of treasury stock (315) (1,120)
Dividends paid (841) (429)
-------- --------
Net cash provided by financing
activities 3,538 1,541
-------- --------
Effect of foreign currency rate changes on cash (857) (117)
-------- --------
Net decrease in cash and cash equivalents (5,429) (1,817)
-------- --------
Cash and cash equivalents at beginning of period 15,597 10,320
-------- --------
Cash and cash equivalents at end of period $ 10,168 $ 8,503
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 114 $ 1,074
======== ========
Income taxes $ 2,180 $ 1,569
======== ========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Note 1: BASIS OF PRESENTATION
The financial information included herein, other than the condensed
consolidated balance sheet as of December 31, 2002, has been prepared by
management and is unaudited. The condensed consolidated balance sheet as of
December 31, 2002, has been derived from, but does not include all the
disclosures contained in, the audited consolidated financial statements for the
year ended December 31, 2002. The information furnished herein includes all
adjustments which are, in the opinion of management, necessary for a fair
statement of the results of the interim period, and all such adjustments are of
a normal recurring nature. Management recommends the accompanying condensed
consolidated financial information be read in conjunction with the consolidated
financial statements and related notes included in the Company's 2002 Annual
Report on Form 10-K which accompanies the 2002 Corporate Report.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year.
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 adopted SFAS No. 143 as of January 1, 2003, and
determined that no material adjustments were necessary. At March 31, 2003 the
Company's recorded reclamation obligation was $5,884. During the quarter ended
March 31, 2003, the obligation was reduced by $51 due to payments made in
relation to normal mining activities offset by accretion and recognition of
normal mining activities.
Note 2: INVENTORIES
Inventories at March 31, 2003 have been valued using the same methods as
at December 31, 2002. The composition of inventories at March 31, 2003 and
December 31, 2002, was as follows:
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March 31, December 31,
2003 2002
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Advance mining $ 3,043 $ 2,836
Crude stockpile inventories 11,931 11,330
In-process inventories 12,444 15,142
Other raw material, container, and
supplies inventories 10,431 9,546
------- -------
$37,849 $38,854
======= =======
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4
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)(Continued)
Note 3: EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during each period. Diluted
earnings per share were computed by dividing net income by the weighted average
common shares outstanding after consideration of the dilutive effect of stock
options outstanding during each period.
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Three Months Ended
March 31,
------------------------
2003 2002
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Weighted average of common shares outstanding 27,994,263 28,454,530
Dilutive impact of stock options 1,751,964 2,467,256
---------- ----------
Weighted average of common and common equivalent 29,746,227 30,921,786
shares for the period
========== ==========
Common shares outstanding 28,100,045 28,555,026
========== ==========
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Note 4: BUSINESS SEGMENT INFORMATION
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 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 performance 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.
5
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
(Continued)
The following summaries set forth certain financial information by
business segment for the three months ended March 31, 2003 and 2002 and as of
March 31, 2003 and December 31, 2002.
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Three Months Ended
March 31,
-----------------------------
2003 2002
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Business Segment:
Revenues:
Minerals $ 50,177 $ 33,690
Environmental 23,489 18,493
Transportation 8,797 7,384
Intersegment shipping (2,996) (2,226)
--------- ---------
Total $ 79,467 $ 57,341
========= =========
Operating profit (loss):
Minerals $ 4,917 $ 2,217
Environmental 2,383 939
Transportation 376 226
Corporate (3,346) (2,759)
--------- ---------
Total $ 4,330 $ 623
========= =========
March 31, 2003 Dec. 31, 2002
--------------------------------
Assets:
Minerals $ 128,861 $ 128,566
Environmental 69,327 65,783
Transportation 2,324 1,895
Corporate 23,481 25,584
--------- ---------
Total $ 223,993 $ 221,828
========= =========
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All of the Company's goodwill at March 31, 2003 and December 31, 2002 was
associated with the minerals segment.
Note 5: STOCK OPTION PLANS
Prior to 2003, the Company accounted for its fixed plan stock options
under the recognition and measurement provisions of APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations. No
stock-based employee compensation cost was reflected in net income for the three
months ended March 31, 2002, as all options granted under those plans had an
exercise price equal to the market value of the underlying common stock on the
date of grant. Effective January 1, 2003, the Company adopted the fair value
recognition provisions of FASB Statement No. 123, Accounting for Stock-Based
Compensation, and has elected to apply these provisions prospectively to all
employee awards granted, modified, or settled after January 1, 2003. Awards
under the Company's plans vest over three years. Therefore, the cost related to
stock-based employee compensation included in the determination of net income
for 2003 and 2004 will be less than that which would have been recognized
6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
(Continued)
if the fair value based method had been applied to all awards since the original
effective date of Statement No. 123.
Results for prior years have not been restated. The following table
illustrates the effect on net income and earnings per share if the fair value
based method had been applied to all outstanding and unvested awards in each
period.
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------
2003 2002
- --------------------------------------------------------------------------------
Net income, as reported $2,930 $ 532
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects 66 --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (207) (195)
------ -----
Pro forma net income $2,789 $ 337
====== =====
Earnings per share:
Basic - as reported $ 0.10 $0.02
Basic - pro forma $ 0.10 $0.01
Diluted - as reported $ 0.10 $0.02
Diluted - pro forma $ 0.09 $0.01
- --------------------------------------------------------------------------------
Note 6: 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, of May 1, 2002.
7
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
(Continued)
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 operations as if the acquisition of CSM had occurred on
January 1, 2002. The unaudited pro forma information is not necessarily
indicative of the combined results that would have occurred had the acquisition
taken place on January 1, 2002, 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
=======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Actual Pro Forma
Three Months Three Months
Ended Ended
March 31, March 31,
-----------------------------
2003 2002
- --------------------------------------------------------------------------------
Net sales $ 79,467 $ 65,335
Net income 2,930 1,068
Basic earnings per share 0.10 0.04
Diluted earnings per share 0.10 0.03
- --------------------------------------------------------------------------------
Note 7: DERIVATIVES
From time to time, the Company uses financial derivatives, principally
swaps, forward contracts and options, in its management of foreign currency and
interest rate exposures. These contracts hedge transactions and balances for
periods consistent with committed exposures.
The Company uses variable rate credit facilities to finance its
operations. These debt obligations expose the Company to variability in interest
payments due to changes in interest rates. If interest rates increase, interest
expense increases. Conversely, if interest rates decrease, interest expense also
decreases.
At March 31, 2003, and for the three months then ended, the Company had no
derivative instruments outstanding.
8
Item 2: AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's financial position and
operating results during the periods included in the accompanying condensed
consolidated financial statements.
Net sales for the first quarter of 2003 were $79.5 million which was an
increase of $22.1 million, or 39% over the same period in 2002. The Company's
minerals segment accounted for 63% of net sales and 75% of the increase over the
first quarter of 2002. Environmental segment sales represented 30% of net sales
for the 2003 quarter and 23% of the increase. Transportation segment sales
accounted for 7% of net sales for the 2003 quarter, after eliminating
intersegment sales, and 2% of increase over the first quarter of 2002.
Gross profit was $18.6 million compared with $12.7 million in the prior
year quarter. Gross margin improved to 23.4% from 22.1% in the comparable period
in 2002. The improvement in margins followed the increase in net sales and lower
unit production costs in certain minerals segment businesses.
General, selling and administrative expenses totaled $14.3 million in the
quarter compared with $12.0 million in the prior year, an increase of 19%.
Higher pension, insurance and compensation costs contributed approximately 50%
of the increase. Selling and administrative expenses associated with Colin
Stewart Minchem (CSM), which is part of the minerals segment and was acquired in
May 2002, accounted for approximately 40% of the increase.
Operating profit for the period was $4.3 million compared with $0.6
million in the prior year. The large increase followed the improvement in gross
profit that was generated by higher net sales.
Interest expense was $80 thousand in the quarter compared with $92
thousand in the prior year. Average debt levels and borrowing rates were
comparable to the prior year. The effective income tax rate for the quarter was
34% compared with 35% in the prior year.
Income from minority interests and joint ventures was $0.1 million
compared with $0.2 million in the prior year. The decline was attributed to the
recording of a tax benefit associated with the disposal of a minority interest
in a Chinese business in 2002.
Net income was $2.9 million in the first quarter of 2003 compared with
$0.5 million in the prior year. The increase was a result of the improvement in
sales and operating profit described above. Diluted earnings per share totaled
$0.10 per share compared to $0.02 per share in the 2002 quarter. Weighted
average common and common equivalent shares outstanding decreased by
approximately 4% from the prior year period to 29.7 million. The decrease is the
result of stock repurchases executed by the Company over the last twelve months.
9
Segment Analysis
- ------------------------------------------------------------------------------------------------
Minerals Three Months Ended March 31,
----------------------------------------------------------------
2003 2002 2003 vs.2002
- ------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Product sales $ 46,061 91.8% $ 31,060 92.2%
Shipping revenue 4,116 8.2% 2,630 7.8%
-------- -------- -------- --------
Net sales 50,177 100.0% 33,690 100.0% 16,487 48.9%
-------- -------- -------- --------
Cost of sales - product 36,611 73.0% 25,491 75.7%
Cost of sales - shipping 4,116 8.2% 2,630 7.8%
-------- -------- -------- --------
Cost of sales 40,727 81.2% 28,121 83.5%
-------- -------- -------- --------
Gross profit 9,450 18.8% 5,569 16.5% 3,881 69.7%
General, selling and
administrative expenses 4,533 9.0% 3,352 9.9% 1,181 35.2%
-------- -------- -------- -------- --------
Operating profit 4,917 9.8% 2,217 6.6% 2,700 121.8%
- ------------------------------------------------------------------------------------------------
Approximately 50% of the $16.5 million increase in minerals net sales in
the first quarter was contributed by CSM, which was acquired by the Company on
May 1, 2002. The domestic minerals business units contributed approximately $5.3
million of the increase. Sales volume in the domestic metalcasting, pet
products, oil well and export businesses all increased. Pricing was comparable
to 2002 levels in the first quarter for the domestic minerals businesses.
International-based mineral businesses contributed the remainder of sales
increase.
Domestic minerals businesses contributed approximately 67% of the increase
in gross profit over the 2002 first quarter. Higher sales volume in the
aforementioned domestic businesses was the primary reason for the increase. CSM
was the primary contributor to the remaining increase in gross profit.
Approximately 75% of the increase in general, selling and administrative
expenses was attributed to CSM. Increases in pension and employee benefit costs
for domestic personnel accounted for most of the remaining increase.
- ------------------------------------------------------------------------------------------------
Environmental Three Months Ended March 31,
----------------------------------------------------------------
2003 2002 2003 vs.2002
- ------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Product sales $ 21,953 93.5% $ 17,220 93.1%
Shipping revenue 1,536 6.5% 1,273 6.9%
-------- -------- -------- --------
Net sales 23,489 100.0% 18,493 100.0% 4,996 27.0%
-------- -------- -------- --------
Cost of sales - product 13,757 58.6% 10,919 59.0%
Cost of sales - shipping 1,536 6.5% 1,273 6.9%
-------- -------- -------- --------
Cost of sales 15,293 65.1% 12,192 65.9%
-------- -------- -------- --------
Gross profit 8,196 34.9% 6,301 34.1% 1,895 30.1%
General, selling and
administrative expenses 5,813 24.8% 5,362 29.0% 451 8.4%
-------- -------- -------- -------- -------
Operating profit 2,383 10.1% 939 5.1% 1,444 153.8%
- ------------------------------------------------------------------------------------------------
Strong lining technology shipments in domestic and international markets
accounted for approximately 40% of the increase in sales. Higher sales in the
segment's European offshore products and service revenues contributed
approximately 25% of the increase over the prior year's first
10
quarter. The remaining increase over 2002 was primarily attributed to higher
sales volume in the European construction and waterproofing business.
The 30% increase in gross profit over the 2002 first quarter corresponds
to the increase in sales. The domestic and European lining technology businesses
also experienced lower unit production costs due to lower manufacturing
overhead.
General, selling and administrative expenses increased primarily due to
higher personnel costs in Europe.
- ------------------------------------------------------------------------------------------------
Transportation Three Months Ended March 31,
----------------------------------------------------------------
2003 2002 2003 vs. 2002
- ------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Net sales $ 8,797 100.0% $ 7,384 100.0% $ 1,413 19.1%
Cost of sales 7,819 88.9% 6,601 89.4%
------- ----- ------- -----
Gross profit 978 11.1% 783 10.6% 195 24.9%
General, selling and
administrative expenses 602 6.8% 557 7.5% 45 8.1%
------- ----- ------- ----- -------
Operating profit 376 4.3% 226 3.1% 150 66.4%
- ------------------------------------------------------------------------------------------------
Higher traffic levels led to the increase in transportation sales.
Intersegment sales contributed approximately 50% of the sales increase. Pricing
increased over the 2002 first quarter due to surcharges levied to offset rising
diesel fuel costs. Gross margins increased 50 basis points due to higher
equipment utilization rates.
General, selling and administrative expenses increased due to higher
personnel costs.
- --------------------------------------------------------------------------------
Corporate Three Months Ended March 31,
------------------------------------------------
2003 2002 2003 vs. 2002
- --------------------------------------------------------------------------------
(Dollars in Thousands)
- --------------------------------------------------------------------------------
Intersegment shipping sales $ (2,996) $ (2,226)
Intersegment shipping costs (2,996) (2,226)
-------- --------
Gross profit -- --
Corporate general, selling
and administrative expenses 2,318 1,590 728 45.8%
Nanocomposite business
development expenses 1,028 1,169 (141) -12.1%
-------- -------- -----
Operating loss (3,346) (2,759) (587) 21.3%
- --------------------------------------------------------------------------------
Intersegment shipping sales and costs are related to billings from the
transportation segment to the domestic minerals and environmental segments for
services. These services are invoiced to the minerals and environmental segments
at arms-length rates and those costs are subsequently charged to customers.
Intersegment sales and costs reported above reflect the elimination of these
transactions.
The increase in corporate, selling and administrative expenses is related
to higher compensation and employee benefit costs. Approximately 30% of the
increase over the first quarter of 2002 is related to higher defined benefit
pension plan expenses. As disclosed in footnote 5, the Company adopted the fair
value recognition provisions of FASB Statement No. 123 on January 1, 2003,
Accounting for Stock-Based Compensation. The Company elected to record
stock-based based compensation costs using fair value under the prospective
method.
11
Liquidity and Capital Resources
Working capital was $60.3 million and $58.5 million at March 31, 2003 and
December 31, 2002, respectively. The current ratio at March 31, 2003 was
2.12-to-1 compared with 2.11-to-1 at December 31, 2002.
Net cash used in operating activities was $3.9 million for the three
months ended March 31, 2003 compared with net cash provided by operating
activities of $0.2 million in the first quarter of 2002. The primary difference
in operating cash flow between the two periods was attributed to current assets
which increased by $8.5 million in the first quarter of 2003 compared to a
decrease of $2.9 million in the prior year's first quarter. Accounts receivable
increased by approximately $7.6 million from the December 31, 2002 balance and
therefore, was the major contributor to the increase in current assets. Accounts
receivable increased commensurate with higher sales reported in the first
quarter of 2003.
Capital expenditures were approximately $3.5 million in the first quarter
of 2003 compared with $3.4 million in the prior year period.
Net cash provided by financing activities totaled $3.5 million in the
first quarter of 2003 compared with $1.5 million for the same period in 2002.
The Company borrowed approximately $4.0 million from its revolving credit
facility in the first quarter of 2003 to fund working capital needs and capital
expenditures. Dividends paid on common stock were $841 thousand and the Company
repurchased 56 thousand shares of common stock in the first quarter of 2003 for
a total of $315 thousand. Approximately $4.9 million remains in the stock
repurchase authorization approved by the Company's board of directors. The
Company received $528 thousand in proceeds from the exercise of stock options by
employees and directors in the first quarter of 2003.
The Company has a revolving credit facility of $125 million with financial
institutions that matures in October 2003. As of March 31, 2003, the Company had
approximately $108 million of unused, committed credit lines. The Company is
currently in the process of negotiating with financial institutions for a new
revolving credit facility with similar terms and borrowing capacity. The credit
facilities combined with funds generated from operations are expected to be
adequate to fund capital expenditures and other investments approved by the
board of directors at this time.
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
operations of the Company.
New Accounting Pronouncements
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
12
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 adopted SFAS No. 143 as of January
1, 2003, and determined that no material adjustments were necessary.
Forward-Looking Statements
Certain statements made from time-to-time by the Company, including
statements in the Management's Discussion and Analysis 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, and
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, but not limited to, the actual growth in
the Company's various markets, utilization of the Company's plants, competition
in our business segments, operating costs, weather, currency exchange rates,
currency devaluations, delays in development, production and marketing of new
products, integration of acquired businesses, and other factors detailed from
time-to-time in AMCOL's annual report and other reports filed with the
Securities and Exchange Commission.
Item 3: Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes in the Company's market risk during
the three months ended March 31, 2003. See disclosures as of December 31, 2002
in the Form 10-K, Item 7A.
Item 4: Controls and Procedures
Within the 90-day period prior to the filing of the report, an evaluation
was performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent to
the date the evaluation was carried out.
13
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) See Index to Exhibits immediately following the signature page.
(b) No reports on Form 8-K were filed during the quarter ended
March, 31, 2003.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCOL INTERNATIONAL CORPORATION
Date: May 13, 2003 /s/ Lawrence E. Washow
------------------ ----------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Date: May 13, 2003 /s/ Gary L. Castagna
------------------ -----------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financial
Officer and Principal Accounting Officer
CERTIFICATIONS
05/13/03 Lawrence E. Washow
05/13/03 Gary L. Castagna
15
CERTIFICATION
I, Lawrence E. Washow, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMCOL
International Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly 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:
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
quarterly 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.
Date: May 13, 2003 /s/ Lawrence E. Washow
----------------------
Lawrence E. Washow
President and Chief Executive Officer
16
CERTIFICATION
I, Gary L. Castagna, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMCOL
International Corporation;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly 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:
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 quarterly 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.
Date: May 13, 2003 /s/ Gary L. Castagna
--------------------
Gary L. Castagna
Senior Vice President, Chief Financial
Officer and Principal Accounting Officer
17
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)
10.3 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)
10.26 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)
99.10 Certification of Periodic Financial Report Pursuant to 18 U.S.C.
Section 1350, dated May 13, 2003
- ----------
(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.
18
(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.
19