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 June 30, 2003 or
---------------------------------------------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-15661
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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
incorporation or organization) Identification No.)
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 July 22, 2003
- ------------------------------- ---------------------------------
(Common stock, $.01 par value) 28,348,969 Shares
AMCOL INTERNATIONAL CORPORATION
INDEX
Page No.
--------
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2003 and December 31, 2002 1
Condensed Consolidated Statements of Operations -
three and six months ended June 30, 2003 and 2002 2
Condensed Consolidated Statements of Comprehensive Income -
three and six months ended June 30, 2003 and 2002 2
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 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 16
Item 4 Controls and Procedures 16
Part II - Other Information
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 6 Exhibits and Reports on Form 8-K 17
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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ASSETS June 30, December 31,
2003 2002
(unaudited) *
- --------------------------------------------------------------------------------
Current assets:
Cash $ 13,110 $ 15,597
Accounts receivable, net 64,008 48,870
Inventories 38,227 38,854
Prepaid expenses 5,833 4,270
Current deferred tax assets 2,829 2,825
Income taxes receivable 1,628 717
-------- --------
Total current assets 125,635 111,133
-------- --------
Investments in and advances
to joint ventures 12,841 12,419
-------- --------
Property, plant, equipment, and
mineral rights and reserves:
Land and mineral rights and reserves 9,582 9,543
Depreciable assets 210,121 203,334
-------- --------
219,703 212,877
Less: accumulated depreciation 139,622 131,030
-------- --------
80,081 81,847
-------- --------
Other assets:
Goodwill and other Intangible assets, net 5,216 5,202
Long-term prepayments and other assets 9,505 8,558
Deferred tax assets 2,633 2,669
-------- --------
17,354 16,429
-------- --------
$235,911 $221,828
======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, December 31,
2003 2002
(unaudited) *
- --------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt $ 16,600 $ 12,600
Accounts payable 15,569 17,918
Accrued liabilities 25,823 22,121
-------- --------
Total current liabilities 57,992 52,639
-------- --------
Long-term debt 5,616 5,573
-------- --------
Minority interests in subsidiaries 612 615
Other liabilities 11,858 11,618
-------- --------
12,470 12,233
-------- --------
Stockholders' equity:
Common stock 320 320
Additional paid in capital 67,349 69,850
Retained earnings 107,994 101,322
Accumulated other comprehensive income 4,291 2,005
-------- --------
179,954 173,497
Less:
Treasury stock 20,121 22,114
-------- --------
159,833 151,383
-------- --------
$235,911 $221,828
======== ========
- --------------------------------------------------------------------------------
* 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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Six Months Ended Three Months Ended
June 30, June 30,
-------------------------------------------------------------
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 172,720 $ 135,876 $ 93,253 $ 78,535
Cost of sales 130,900 103,955 70,057 59,267
------------ ------------ ------------ ------------
Gross profit 41,820 31,921 23,196 19,268
General, selling and administrative expenses 29,223 25,143 14,929 13,113
------------ ------------ ------------ ------------
Operating profit 12,597 6,778 8,267 6,155
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (202) (240) (122) (148)
Other, net 162 (77) 130 (47)
------------ ------------ ------------ ------------
(40) (317) 8 (195)
------------ ------------ ------------ ------------
Income before income taxes and equity 12,557 6,461 8,275 5,960
in income of joint ventures
Income tax expense 4,269 2,325 2,814 2,149
------------ ------------ ------------ ------------
Income before equity in income of 8,288 4,136 5,461 3,811
joint ventures
Income from joint ventures 347 447 252 243
Minority interest in net loss (income) of subsidiary 2 11 (6) 8
------------ ------------ ------------ ------------
Net income $ 8,637 $ 4,594 $ 5,707 $ 4,062
============ ============ ============ ============
Weighted average common shares outstanding 28,051,675 28,416,239 28,108,456 28,378,373
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding 29,745,805 30,688,126 29,896,941 30,559,763
============ ============ ============ ============
Basic earnings per share $ 0.30 $ 0.16 $ 0.20 $ 0.14
============ ============ ============ ============
Diluted earnings per share $ 0.29 $ 0.15 $ 0.19 $ 0.13
============ ============ ============ ============
Dividends declared per share $ 0.070 $ 0.035 $ 0.040 $ 0.020
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
- -------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
2003 2002 2003 2002
Net income $ 8,637 $ 4,594 $ 5,707 $ 4,062
Other comprehensive income:
Foreign currency translation adjustment 2,286 2,930 3,832 3,314
------------ ------------ ------------ ------------
Comprehensive income $ 10,923 $ 7,524 $ 9,539 $ 7,376
============ ============ ============ ============
- -------------------------------------------------------------------------------------------------------------------
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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Six Months Ended
June 30,
2003 2002
--------------------------
Cash flow from operating activities:
Net income $ 8,637 $ 4,594
Adjustments to reconcile from net income to net cash provided
by (used in) operating activities:
Depreciation, depletion, and amortization 8,756 8,801
Changes in assets and liabilities, net of effects of acquisitions:
Increase in current assets (17,221) (8,770)
Decrease in noncurrent assets 35 165
(Decrease) increase in current liabilities 1,353 (639)
Increase in noncurrent liabilities 240 1,264
Other (153) 815
-------- --------
Net cash provided by operating activities 1,647 6,230
-------- --------
Cash flow from investing activities:
Acquisition of land, mineral reserves, and depreciable assets (6,323) (7,342)
Acquisitions -- (16,805)
Other (978) (4,276)
-------- --------
Net cash used in investing activities (7,301) (28,423)
-------- --------
Cash flow from financing activities:
Net change in outstanding debt 4,043 21,851
Proceeds from sales of treasury stock 1,085 1,140
Purchases of treasury stock (1,593) (4,015)
Dividends paid (1,965) (994)
-------- --------
Net cash provided by financing activities 1,570 17,982
-------- --------
Effect of foreign currency rate changes on cash 1,597 1,596
-------- --------
Net decrease in cash and cash equivalents (2,487) (2,615)
-------- --------
Cash and cash equivalents at beginning of period 15,597 10,320
-------- --------
Cash and cash equivalents at end of period $ 13,110 $ 7,705
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 252 $ 210
======== ========
Income taxes $ 2,180 $ 702
======== ========
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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, except share and per share amounts)
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 operations and cash flows for the interim periods
ended June 30, 2003 and 2002, and the financial position of the Company as of
June 30, 2003, 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 years.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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 June 30, 2003 the
Company's recorded reclamation obligation was $5,834. During the quarter ended
June 30, 2003, the obligation was reduced by $101 due to payments made in
relation to normal mining activities offset by accretion and recognition of
additional obligations resulting from normal mining activities.
Note 2: INVENTORIES
Inventories at June 30, 2003 have been valued using the same methods as at
December 31, 2002. The composition of inventories at June 30, 2003 and December
31, 2002, was as follows:
- --------------------------------------------------------------------------------
June 30, December 31,
2003 2003
- --------------------------------------------------------------------------------
Advance mining $ 3,008 $ 2,836
Crude stockpile inventories 12,120 11,330
In-process inventories 11,850 15,142
Other raw material, container,
and supplies inventories 11,249 9,546
------- -------
$38,227 $38,854
======= =======
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4
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
(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.
- --------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------------------
2003 2002 2003 2002
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Weighted average of common shares outstanding 28,051,675 28,416,239 28,108,456 28,378,373
Dilutive impact of stock options 1,694,130 2,271,887 1,788,485 2,181,390
---------- ---------- ---------- ----------
Weighted average of common and common equivalent
shares for the period 29,745,805 30,688,126 29,896,941 30,559,763
========== ========== ========== ==========
Common shares outstanding at end of period 28,262,630 28,220,874 28,262,630 28,220,874
========== ========== ========== ==========
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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, except share and per share amounts)
(Continued)
The following summaries set forth certain financial information by
business segment for the three and six months ended June 30, 2003 and 2002 and
as of June 30, 2003 and December 31, 2002.
- --------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
----------------------------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Business Segment:
Revenues:
Minerals $ 103,719 $ 78,828 $ 53,542 $ 45,138
Environmental 57,402 46,519 33,913 28,026
Transportation 18,187 15,462 9,390 8,078
Intersegment shipping (6,588) (4,933) (3,592) (2,707)
--------- --------- -------- --------
Total $ 172,720 $ 135,876 $ 93,253 $ 78,535
========= ========= ======== ========
Operating profit (loss):
Minerals $ 10,799 $ 6,521 $ 5,882 $ 4,304
Environmental 7,704 5,521 5,321 4,582
Transportation 775 455 399 229
Corporate (6,681) (5,719) (3,335) (2,960)
--------- --------- -------- --------
Total $ 12,597 $ 6,778 $ 8,267 $ 6,155
========= ========= ======== ========
June 30, 2003 Dec. 31, 2002
============= =============
Assets:
Minerals $ 131,105 $ 128,566
Environmental 75,015 65,783
Transportation 2,288 1,895
Corporate 27,503 25,584
--------- ---------
Total $ 235,911 $ 221,828
========= =========
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All of the Company's goodwill at June 30, 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 six
months ended June 30, 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, except per share amounts)
(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.
- ------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------
Net income, as reported $ 8,637 $ 4,594 $ 5,707 $ 4,062
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects 132 -- 66 --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (414) (390) (207) (195)
--------- --------- --------- ---------
Pro forma net income $ 8,355 $ 4,204 $ 5,566 $ 3,867
========= ========= ========= =========
Earnings per share:
Basic - as reported $ 0.30 $ 0.16 $ 0.20 $ 0.14
Basic - pro forma $ 0.30 $ 0.15 $ 0.20 $ 0.14
Diluted - as reported $ 0.29 $ 0.15 $ 0.19 $ 0.13
Diluted - pro forma $ 0.28 $ 0.14 $ 0.19 $ 0.13
- ------------------------------------------------------------------------------------------------------
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
condensed consolidated financial statements from the acquisition date.
7
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(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 May 1,
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 Actual Pro Forma
Six Months Ended Six Months Ended Three Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
-----------------------------------------------------------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------
Net sales $ 172,720 $ 146,535 $ 93,253 $ 81,200
Net income 8,637 5,309 5,707 4,241
Basic earnings per share 0.30 0.19 0.20 0.15
Diluted earnings per share 0.29 0.18 0.19 0.14
- ------------------------------------------------------------------------------------------------------
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 June 30, 2003, and for the six 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
Three Months Ended June 30, 2003 vs. 2002
Net sales for the second quarter of 2003 were $93.3 million which was an
increase of $14.7 million, or 19% over the same period in 2002. The Company's
minerals segment accounted for 57% of net sales and 57% of the increase over the
second quarter of 2002. Environmental segment sales represented 36% of net sales
for the quarter and 40% of the increase. Transportation segment sales accounted
for 7% of the total, after eliminating intersegment sales, and 3% of the
increase over the second quarter of 2002.
Gross profit was $23.2 million compared with $19.3 million in the prior
year quarter. Gross margin improved to 24.9% from 24.5% 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 $14.9 million in the
quarter compared with $13.1 million in the prior year, an increase of 14%.
Higher pension, insurance and compensation costs contributed approximately 40%
of the increase. Selling and administrative expenses associated with Colin
Stewart Minchem, which is part of the minerals segment and was owned for two
months in the 2002 second quarter, also accounted for approximately 40% of the
increase.
Operating profit for the period was $8.3 million compared with $6.2
million in the prior year. The increase followed the improvement in gross profit
that was generated by higher net sales.
Interest expense was $122 thousand in the quarter compared with $148
thousand in the prior year. The decrease was due to higher average debt levels
in the prior year quarter due to the acquisition of Colin Stewart Minchem (CSM)
during that period. Additionally, borrowing rates were lower in the second
quarter of 2003 compared with the prior year quarter. The Company's borrowing
rates are primarily based on the three-month LIBOR which have decreased relative
to last year.
The effective income tax rate for the quarter was 34% compared with 36% in
the prior year. Lower tax rates on foreign-sourced income were the reason for
the decrease.
Income from minority interests and joint ventures was $0.2 million in both
reporting periods.
Net income was $5.7 million in the second quarter of 2003 compared with
$4.1 million in the prior year period. The increase was the result of the
improvement in sales and operating profit described above. Diluted earnings per
share totaled $0.19 per share compared to $0.13 per share in the 2002 quarter.
Weighted average common and common equivalent shares outstanding decreased by
approximately 2% from the prior year period to 29.9 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 June 30,
----------------------------------------------------------------
2003 2002 2003 vs. 2002
----------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------
Product sales $47,842 89.4% $40,741 90.3%
Shipping revenue 5,700 10.6% 4,397 9.7%
------- ---- ------- ----
Net sales 53,542 100.0% 45,138 100.0% 8,404 18.6%
Cost of sales - product 37,345 69.7% 32,314 71.6%
Cost of sales - shipping 5,700 10.6% 4,397 9.7%
------- ---- ------- ----
Cost of sales 43,045 80.3% 36,711 81.3%
------- ---- ------- ----
Gross profit 10,497 19.7% 8,427 18.7% 2,070 24.6%
General, selling and 4,615 8.6% 4,123 9.1% 492 11.9%
------- ---- ------- ---- -----
administrative expenses
Operating profit 5,882 11.1% 4,304 9.6% 1,578 36.7%
- ---------------------------------------------------------------------------------------------
Approximately 55% of the $8.4 million increase in minerals net sales in
the second quarter was contributed by CSM which was owned for two months in the
2002 second quarter. The domestic minerals business units contributed
approximately 30% of the increase. Sales volume in the domestic metalcasting and
oil well businesses increased over the prior year quarter. Pricing was
comparable to 2002 second quarter levels in the domestic minerals businesses.
The segment's Asian-based mineral's businesses contributed the remainder of the
sales increase.
Gross profit earned on domestic minerals sales accounted for approximately
60% of the increase over the second quarter of 2002. Lower production costs
associated with the pet products business contributed to the improvement in
domestic gross profit. Approximately 24% of the increase in gross profit was
attributed to the segment's Asian-based businesses. The remainder of the
improvement in gross profit was attributed to CSM.
Approximately 65% of the increase in general, selling and administrative
expenses was attributed to CSM. Increases in pension and employee benefit costs
for domestic personnel contributed most of the remaining increase.
- ------------------------------------------------------------------------------------------------
Environmental Three Months Ended June 30,
-----------------------------------------------------------------
2003 2002 2003 vs. 2002
-----------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Product sales $31,270 92.2% $26,139 93.3%
Shipping revenue 2,643 7.8% 1,887 6.7%
------- ----- ------- -----
Net sales 33,913 100.0% 28,026 100.0% 5,887 21.0%
------- ----- ------- -----
Cost of sales - product 19,596 57.8% 16,117 57.5%
Cost of sales - shipping 2,643 7.8% 1,887 6.7%
------- ----- ------- -----
Cost of sales 22,239 65.6% 18,004 64.2%
------- ----- ------- -----
Gross profit 11,674 34.4% 10,022 35.8% 1,652 16.5%
General, selling and
administrative expenses 6,353 18.8% 5,440 19.4% 913 16.8%
------- ----- ------- ----- -----
Operating profit 5,321 15.6% 4,582 16.4% 739 16.1%
- ------------------------------------------------------------------------------------------------
Lining technologies accounted for approximately 65% of the increase in
sales. Both domestic and international shipments contributed to the higher
lining technology sales. Building materials accounted for approximately 35% of
the increase in sales. The increase was primarily led by higher shipments in
Europe.
10
The 17% increase in gross profit over the 2002 second quarter corresponds
with the increase in sales. Gross margin declined by 140 basis points from the
second quarter of 2002. This was primarily due to the higher proportion of
shipping revenue generated by lining technology export shipments. No profit is
earned on shipping revenue. Lower gross margins were also realized on European
offshore revenues.
Higher professional fees were the primary component of the increase in
general, selling and administrative expenses. Compensation expenses also
increased over the second quarter of 2002.
- -------------------------------------------------------------------------------------------
Transportation Three Months Ended June 30,
--------------------------------------------------------------
2003 2002 2003 vs. 2002
--------------------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------------
Net sales $9,390 100.0% $8,078 100.0% $1,312 16.2%
Cost of sales 8,365 89.1% 7,259 89.9%
------ ----- ------ -----
Gross profit 1,025 10.9% 819 10.1% 206 25.2%
General, selling and
administrative expenses 626 6.7% 590 7.3% 36 6.1%
------ ----- ------ ----- ------
Operating profit 399 4.2% 229 2.8% 170 74.2%
- -------------------------------------------------------------------------------------------
Intersegment sales contributed approximately two-thirds of the sales
increase. Higher traffic levels and new customer sales accounted for the
remainder of the increase over the 2002 second quarter. Gross margins increased
80 basis points due to higher equipment utilization rates and better sales
pricing.
General, selling and administrative expenses increased due to higher
personnel costs.
- -------------------------------------------------------------------------------------
Corporate Three Months Ended June 30,
----------------------------------------------------
2003 2002 2003 vs. 2002
----------------------------------------------------
(Dollars in Thousands)
- -------------------------------------------------------------------------------------
Intersegment shipping sales $(3,592) $(2,707)
Intersegment shipping costs (3,592) (2,707)
------- -------
Gross profit -- --
Corporate general, selling
and administrative expenses 2,415 1,889 526 27.8%
Nanocomposite business
development expenses 920 1,071 (151) -14.1%
------- ------- ----
Operating loss (3,335) (2,960) (375) 12.7%
- -------------------------------------------------------------------------------------
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 general, selling and administrative expenses
related to higher compensation and employee benefit costs. Approximately 30% of
the increase over the second quarter of 2002 related to higher defined benefit
pension plan expenses. As disclosed in footnote 5 to the
11
condensed consolidated financial statements, effective January 1, 2003, the
Company adopted the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation. The Company elected to record
stock-based based compensation costs using fair value under the prospective
method.
Lower nanocomposite development expenses were due to a decline in research
and development costs.
Six months ended June 30, 2003 vs. 2002
Net sales for the six months ended June 30, 2003 were $172.7 million
compared with $135.9 million for the prior year period. The minerals segment
accounted for 60% of net sales while the environmental and transportation
segments represented 33% and 7%, respectively. Minerals contributed
approximately 67% of the increase in net sales over the prior year period. The
environmental and transportation segments contributed 30% and 3%, respectively,
to the increase in net sales. The largest component of the increase in net sales
was CSM, which was acquired as of May 1, 2002, and is included in the minerals
segment. This business accounted for approximately 36% of the increase in net
sales for the Company over the prior year period.
Gross profit was $41.8 million for the six month period ended June 30,
2003 compared with $31.9 million for the 2002 period. The 31% increase in gross
profit followed the increase in net sales. Gross margin improved to 24.2%
compared to 23.4%. The improvement was primarily contributed by the minerals
segment due to lower production costs at certain domestic business units and the
acquisition of CSM.
General, selling and administrative expenses were $29.2 for the six month
period ended June 30, 2003 compared with $25.1 in the prior year period. CSM
accounted for 33% of the increase. Higher pension, insurance and compensation
costs were responsible for the remainder of the increase.
Operating profit was $12.6 million for the six month period ended June 30,
2003 compared with $6.8 million in the prior year period. The improvement in
operating profit followed the increase in sales and gross profit. Operating
profit margin for the six month period ended June 30, 2003 was 7.3% compared
with 5.0% in the prior year period.
Net interest expense was $202 thousand for the six month period ended June
30, 2003 compared with $240 thousand in the prior year period. Lower borrowing
rates were the principal reason for the decline in the current year period. Net
other income was $162 thousand for the six month period ended June 30, 2003
compared with net other expense of $77 thousand in the prior year period. The
primary reason for the change was associated with foreign currency exchange
transactions which resulted in a net gain in the current year period compared
with a net loss in the prior year period.
Income tax expense was $4.3 million for the six month period ended June
30, 2003 compared with $2.3 million for the prior year period. The increase
followed the increase in pre-tax income which resulted from higher operating
profits as described above. The effective tax rate for the current year period
was 34% compared with 36% for the prior year period. The point decline was due
to a change in the mix of earnings resulting in lower tax provisions for
earnings generated in foreign jurisdictions.
12
Net income was $8.6 million for the six month period ended June 30, 2003
compared with $4.6 million for the prior year period. The increase resulted from
the improvement in sales and operating profit described above. Diluted earnings
per share totaled $0.29 per share for the current year period compared with
$0.15 per share for the 2002 period. Weighted average common and common
equivalent shares outstanding decreased by approximately 3% 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.
Segment Analysis
- --------------------------------------------------------------------------------------------------
Minerals Six Months Ended June 30,
2003 2002 2003 vs. 2002
(Dollars in Thousands)
- --------------------------------------------------------------------------------------------------
Product sales $ 93,903 90.5% $71,801 91.1%
Shipping revenue 9,816 9.5% 7,027 8.9%
-------- ----- ------- -----
Net sales 103,719 100.0% 78,828 100.0% 24,891 31.6%
-------- ----- ------- -----
Cost of sales - product 73,956 71.3% 57,805 73.3%
Cost of sales - shipping 9,816 9.5% 7,027 8.9%
-------- ----- ------- -----
Cost of sales 83,772 80.8% 64,832 82.2%
-------- ----- ------- -----
Gross profit 19,947 19.2% 13,996 17.8% 5,951 42.5%
General, selling and
administrative expenses 9,148 8.8% 7,475 9.5% 1,673 22.4%
-------- ----- ------- ----- ------
Operating profit 10,799 10.4% 6,521 8.3% 4,278 65.6%
- --------------------------------------------------------------------------------------------------
Approximately 57% of the $24.9 million increase in minerals net sales over
the 2002 period was contributed by CSM which was acquired by the Company on May
1, 2002. The domestic minerals business units contributed approximately 33% of
the increase. Sales volume in the domestic metalcasting, oil drilling and pet
products businesses increased over the prior year period. Pricing in the current
year period in the domestic minerals businesses was comparable to the prior year
period. The segment's Asian-based minerals businesses contributed the remainder
of the sales increase.
Gross profit earned on domestic minerals sales accounted for approximately
60% of the increase over the prior year period. Approximately 25% of the
increase in gross profit was attributed to CSM while the segment's Asian-based
businesses contributed the remainder. Gross margin improved by 140 basis points
to 19.2% for the current year period. The improvement was generated through
higher volume associated with the increase in sales relative to the prior year
period, and from lower production costs in the pet products business.
Approximately 80% of the increase in general, selling and administrative
expenses was attributed to CSM. Increases in pension and employee benefit costs
for domestic personnel contributed most of the remaining increase.
13
- ------------------------------------------------------------------------------------------------
Environmental Six Months Ended June 30,
-----------------------------------------------------------------
2003 2002 2003 vs. 2002
-----------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------
Product sales $53,223 92.7% $43,359 93.2%
Shipping revenue 4,179 7.3% 3,160 6.8%
------- ----- ------- -----
Net sales 57,402 100.0% 46,519 100.0% 10,883 23.4%
------- ----- ------- -----
Cost of sales - product 33,353 58.1% 27,036 58.1%
Cost of sales - shipping 4,179 7.3% 3,160 6.8%
------- ----- ------- -----
Cost of sales 37,532 65.4% 30,196 64.9%
------- ----- ------- -----
Gross profit 19,870 34.6% 16,323 35.1% 3,547 21.7%
General, selling and
administrative expenses 12,166 21.2% 10,802 23.2% 1,364 12.6%
------- ----- ------- ----- ------
Operating profit 7,704 13.4% 5,521 11.9% 2,183 39.5%
- ------------------------------------------------------------------------------------------------
Lining technologies accounted for approximately 60% of the increase in
sales. Both domestic and international shipments contributed to the higher
lining technology sales. Building materials accounted for approximately 30% of
the increase in sales. The increase was primarily led by higher shipments in
Europe.
The 22% increase in gross profit over the prior year period corresponds
with the increase in sales. Gross margin declined by 50 basis points from the
prior year period. This was primarily due to the higher proportion of shipping
revenue generated by lining technology export shipments. No profit is earned on
shipping revenue.
Higher professional fees were the primary components of the increase in
general, selling and administrative expenses. Compensation and employee benefit
costs also increased over the 2002 period.
- -----------------------------------------------------------------------------------------------
Transportation Six Months Ended June 30,
-------------------------------------------------------------------
2003 2002 2003 vs. 2002
-------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------
Net sales $18,187 100.0% $15,462 100.0% $2,725 17.6%
Cost of sales 16,184 89.0% 13,860 89.6%
------- ----- ------- -----
Gross profit 2,003 11.0% 1,602 10.4% 401 25.0%
General, selling and
administrative expenses 1,228 6.8% 1,147 7.4% 81 7.1%
------- ----- ------- ----- ------
Operating profit 775 4.2% 455 3.0% 320 70.3%
- -----------------------------------------------------------------------------------------------
Intersegment sales contributed approximately 45% of the sales increase
over the prior year period. Higher traffic levels and new customer sales
accounted for the remainder of the increase. Gross margin increased 60 basis
points due to higher equipment utilization rates and better sales pricing.
General, selling and administrative expenses increased due to higher
compensation and employee benefit costs.
14
- -----------------------------------------------------------------------------------------
Corporate Six Months Ended June 30,
-----------------------------------------------------
2003 2002 2003 vs. 2002
-----------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------
Intersegment shipping sales $(6,588) $(4,933)
Intersegment shipping costs (6,588) (4,933)
------- -------
Gross profit -- --
Corporate general, selling
and administrative expenses 4,733 3,479 1,254 36.0%
Nanocomposite business
development expenses 1,948 2,240 (292) -13.0%
------- ------- -----
Operating loss (6,681) (5,719) (962) 16.8%
- -----------------------------------------------------------------------------------------
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 general, selling and administrative expenses
relate to higher compensation and employee benefit costs. Included in
compensation costs in the current period was a portion of the fair value of
stock-options granted to employees in the current year. As disclosed in footnote
5 to the condensed consolidated financial statements, effective on January 1,
2003, the Company adopted the fair value recognition provisions of FASB
Statement No. 123, Accounting for Stock-Based Compensation. The Company elected
to prospectively record stock-based based compensation costs using fair value.
Lower nanocomposite development expenses were due to a decline in research
and development costs.
Liquidity and Capital Resources
Working capital was $67.6 million and $58.5 million at June 30, 2003 and
December 31, 2002, respectively. The current ratio at June 30, 2003 was
2.17-to-1 compared with 2.11-to-1 at December 31, 2002.
Net cash provided by operating activities was $1.6 million for the six
months ended June 30, 2003 compared with net cash provided by operating
activities of $6.2 million in the 2002 six month period. The primary difference
in operating cash flow between the two periods was attributed to current assets
which increased by $17.2 million in the first six months of 2003 compared to an
increase of $8.8 million in the prior year's six month period. Accounts
receivable increased by approximately $15.1 million from the December 31, 2002
balance and, therefore, was the major contributor to the increase in current
assets. The increase in accounts receivable follows the increase in sales over
the three month period ended on June 30, 2003.
Capital expenditures were approximately $6.3 million in the first six
months of 2003 compared with $7.3 million in the prior year period.
Net cash provided by financing activities totaled $1.6 million in the
first six months of 2003 compared with $1.8 million for the same period in 2002.
The Company borrowed approximately $4.0
15
million from its revolving credit facility during the first six months of 2003
to fund operating working capital needs. Dividends paid on common stock were
approximately $2.0 million and the Company repurchased 267 thousand shares of
common stock in the first six months of 2003 for a total of approximately $1.6
million. Approximately $3.7 million remains in the stock repurchase
authorization approved by the Company's board of directors. The Company received
approximately $1.1 million in proceeds from the exercise of stock options by
employees and directors in the first six moths of 2003.
The Company has a revolving credit facility of $125 million with financial
institutions that matures in October 2003. As of June 30, 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
existing and anticipated replacement 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.
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 June 30, 2003. See disclosures as of December 31, 2002 in
the Company's Annual Report on Form 10-K, Item 7A.
Item 4: Controls and Procedures
As of the end of the period covered by this 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
over financial reporting or in other factors that could significantly affect
those controls subsequent to the date the evaluation was carried out.
16
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
(a) The Annual Stockholders Meeting of the Company was held on May 15,
2003.
(b) At the Annual Stockholders Meeting, the Stockholders voted on the
following uncontested matters: each nominee for director was elected
by a vote of the Stockholders; and each matter was approved by a
vote of the Stockholders as follows:
1. Election of the below-named Nominees of the Board of Directors
of AMCOL International Corporation:
- --------------------------------------------------------------------------------
For Withheld
- --------------------------------------------------------------------------------
Robert E. Driscoll, III 21,236,278 2,066,762
Daniel P. Casey 22,705,070 597,970
Dale E. Stahl 21,230,831 2,072,209
- --------------------------------------------------------------------------------
2. To amend AMCOL's 1998 Long-Term Incentive Plan
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
21,138,185 2,119,508 45,343
- --------------------------------------------------------------------------------
3. To ratify the appointment of AMCOL's independent auditor's
(KPMG, LLP)
- --------------------------------------------------------------------------------
For Against Abstain
- --------------------------------------------------------------------------------
19,889,380 3,384,791 28,867
- --------------------------------------------------------------------------------
Item 6: Exhibits and Reports on Form 8-K
(a) See Index to Exhibits immediately following the signature page.
(b) A current report on Form 8-K was filed on April 21, 2003,
furnishing a press release disclosing the Company's operating
results for the first quarter ended March 31, 2003.
17
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: August 12, 2003 /s/ Lawrence E. Washow
----------------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Date: August 12, 2003 /s/ Gary L. Castagna
----------------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financial
Officer and Principal Accounting Officer
CERTIFICATIONS
08/12/03 Lawrence E. Washow
08/12/03 Gary L. Castagna
18
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)
31 Rule 13a - 14(a) / 15d-14(a) Certifications
32 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section
1350, dated August 12, 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.
19
(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.
20