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 September 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 ______________________
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 (IRS Employer Identification No.)
of 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 November 4, 2003
- ------------------------------- -------------------------------
(Common stock, $.01 par value) 28,934,658 Shares
AMCOL INTERNATIONAL CORPORATION
INDEX
Page No.
--------
Part I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002 1
Condensed Consolidated Statements of Operations -
three and nine months ended September 30, 2003 and 2002 2
Condensed Consolidated Statements of Comprehensive
Income - three and nine months ended September 30, 2003
and 2002 2
Condensed Consolidated Statements of Cash Flows -
nine months ended September 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 6 Exhibits and Reports on Form 8-K 16
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
- --------------------------------------------------------------------------------
September 30, December 31,
2003 2002
(unaudited) *
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 13,447 $ 15,597
Accounts receivable, net 67,423 48,870
Inventories 41,195 38,854
Prepaid expenses 6,186 4,270
Current deferred tax assets 2,852 2,825
Income taxes receivable 1,197 717
-------- --------
Total current assets 132,300 111,133
-------- --------
Investments in and advances to joint ventures 13,073 12,419
-------- --------
Property, plant, equipment, and mineral
rights and reserves:
Land and mineral rights and reserves 9,560 9,543
Depreciable assets 215,904 203,334
-------- --------
225,464 212,877
Less: accumulated depreciation 143,924 131,030
-------- --------
81,540 81,847
-------- --------
Other assets:
Goodwill and other intangibles (net) 5,978 5,202
Long-term prepayments and other assets 8,680 8,558
Deferred tax assets 2,564 2,669
-------- --------
17,222 16,429
-------- --------
$244,135 $221,828
======== ========
- --------------------------------------------------------------------------------
September 30, December 31,
2003 2002
(unaudited) *
LIABILITIES AND STOCKHOLDERS' EQUITY ------------- ------------
Current liabilities:
Current maturities of long-term debt $ 9,100 $ 12,600
Accounts payable 21,672 17,918
Accrued liabilities 29,288 22,121
-------- --------
Total current liabilities 60,060 52,639
-------- --------
Long-term debt 5,006 5,573
-------- --------
Minority interests in subsidiaries 116 615
Other liabilities 13,841 11,618
-------- --------
13,957 12,233
-------- --------
Stockholders. equity:
Common stock 320 320
Additional paid in capital 66,613 69,850
Retained earnings 113,489 101,322
Accumulated other comprehensive income 4,784 2,005
-------- --------
185,206 173,497
Less:
Treasury stock 20,094 22,114
-------- --------
165,112 151,383
-------- --------
$244,135 $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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Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------------------
Net sales $ 272,186 $ 221,072 $ 99,466 $ 85,196
Cost of sales 205,001 167,837 74,101 63,882
------------ ------------ ------------ ------------
Gross profit 67,185 53,235 25,365 21,314
General, selling and administrative expenses 44,646 38,858 15,423 13,715
------------ ------------ ------------ ------------
Operating profit 22,539 14,377 9,942 7,599
------------ ------------ ------------ ------------
Other income (expense):
Interest expense, net (293) (410) (91) (170)
Other, net 271 (92) 107 (15)
------------ ------------ ------------ ------------
(22) (502) 16 (185)
------------ ------------ ------------ ------------
Income before income taxes and equity
in income of joint ventures 22,517 13,875 9,958 7,414
Income tax expense 7,656 4,997 3,387 2,672
------------ ------------ ------------ ------------
Income before equity in income of
joint ventures 14,861 8,878 6,571 4,742
Income from joint ventures 408 487 61 40
Minority interest in net loss of subsidiary 2 87 -- 76
------------ ------------ ------------ ------------
Net income $ 15,271 $ 9,452 $ 6,632 $ 4,858
============ ============ ============ ============
Weighted average common shares outstanding 28,176,170 28,230,881 28,421,103 27,866,211
============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding 29,841,379 30,370,517 30,410,215 29,890,911
============ ============ ============ ============
Basic earnings per share $ 0.54 $ 0.33 $ 0.23 $ 0.17
============ ============ ============ ============
Diluted earnings per share $ 0.51 $ 0.31 $ 0.22 $ 0.16
============ ============ ============ ============
Dividends declared per share $ 0.110 $ 0.065 $ 0.040 $ 0.030
============ ============ ============ ============
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
- ----------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
------------------ --------------------
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------
Net income $15,271 $ 9,452 $ 6,632 $ 4,858
Other comprehensive income:
Foreign currency translation adjustment 2,779 447 497 3,377
------- ------- ------- -------
Comprehensive income $18,050 $ 9,899 $ 7,129 $ 8,235
======= ======= ======= =======
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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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Nine Months Ended
September 30,
--------------------
2003 2002
- ---------------------------------------------------------------------------------------------
Cash flow from operating activities:
Net income $ 15,271 $ 9,452
Adjustments to reconcile from net income to net cash provided
by (used in) operating activities:
Depreciation, depletion, and amortization 13,572 14,292
Changes in assets and liabilities, net of effects of acquisitions:
Increase in current assets (23,590) (11,338)
Increase in noncurrent assets (992) (2,599)
Increase in current liabilities 10,913 4,054
Increase in noncurrent liabilities 804 1,114
Other (589) 363
-------- --------
Net cash provided by operating activities 15,389 15,338
-------- --------
Cash flow from investing activities:
Acquisition of land, mineral reserves, and depreciable assets (10,263) (10,111)
Acquisitions (2,957) (16,966)
Other 797 281
-------- --------
Net cash used in investing activities (12,423) (26,796)
-------- --------
Cash flow from financing activities:
Net change in outstanding debt (4,067) 15,808
Proceeds from sales of treasury stock 1,794 1,382
Purchases of treasury stock (1,593) (6,781)
Dividends paid (3,107) (1,828)
-------- --------
Net cash provided by (used in) financing activities (6,973) 8,581
-------- --------
Effect of foreign currency rate changes on cash 1,857 1,816
-------- --------
Net decrease in cash and cash equivalents (2,150) (1,061)
-------- --------
Cash and cash equivalents at beginning of period 15,597 10,320
-------- --------
Cash and cash equivalents at end of period $ 13,447 $ 9,259
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 306 $ 469
======== ========
Income taxes $ 8,341 $ 879
======== ========
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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 has been prepared by management
and other than the condensed consolidated balance sheet as of December 31, 2002,
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 September 30, 2003 and
2002, and the financial position of the Company as of September 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 required to the amounts previously
recorded. At September 30, 2003 the Company's recorded reclamation obligation
was $5,811. During the quarter ended September 30, 2003, the obligation was
reduced by $23 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 September 30, 2003 have been valued using the same
methods as at December 31, 2002. The composition of inventories at September 30,
2003 and December 31, 2002, was as follows:
- --------------------------------------------------------------------------------
September 30, December 31,
2003 2002
- --------------------------------------------------------------------------------
Advance mining $ 2,552 $ 2,836
Crude stockpile inventories 11,657 11,330
In-process inventories 12,968 15,142
Other raw material, container, and
supplies inventories 14,018 9,546
------- -------
$41,195 $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.
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Nine Months Ended Three Months Ended
September 30, September 30,
---------------------- -----------------------
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
Weighted average of common shares outstanding 28,176,170 28,230,881 28,421,103 27,866,211
Dilutive impact of stock options 1,665,209 2,139,636 1,989,112 2,024,700
---------- ---------- ---------- ----------
Weighted average of common and common equivalent
shares for the period
Common shares outstanding at end of period 29,841,379 30,370,517 30,410,215 29,890,911
========== ========== ========== ==========
28,550,834 27,776,608 28,550,834 27,776,608
========== ========== ========== ==========
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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 nine months ended September 30, 2003 and 2002
and as of September 30, 2003 and December 31, 2002.
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Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------------------------------
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Business Segment:
Revenues:
Minerals $ 158,930 $ 125,330 $ 55,211 $ 46,502
Environmental 95,669 79,735 38,267 33,216
Transportation 28,554 24,053 10,367 8,591
Intersegment shipping (10,967) (8,046) (4,379) (3,113)
--------- --------- --------- ---------
Total $ 272,186 $ 221,072 $ 99,466 $ 85,196
========= ========= ========= =========
Operating profit (loss):
Minerals $ 16,854 $ 10,907 $ 6,055 $ 4,386
Environmental 14,875 11,471 7,171 5,950
Transportation 1,252 697 477 242
Corporate (10,442) (8,698) (3,761) (2,979)
--------- --------- --------- ---------
Total $ 22,539 $ 14,377 $ 9,942 $ 7,599
========= ========= ========= =========
Sep. 30, 2003 Dec. 31, 2002
----------------------------
Assets:
Minerals $ 137,096 $ 128,566
Environmental 80,488 65,783
Transportation 1,545 1,895
Corporate 25,006 25,584
--------- ---------
Total $ 244,135 $ 221,828
========= =========
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All of the Company's goodwill at December 31, 2002 was associated with the
minerals segment. At September 30, 2003, goodwill was $5,218 and $530 for the
minerals and environmental segments respectively. The purchase price allocation
of acquisitions made in 2003 have not been finalized as management is in the
process of analyzing the fair values of the acquired assets and liabilities.
Note 5: STOCK OPTION PLANS
Prior to 2003, the Company accounted for its fixed plan stock options
under the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost was reflected in net
income prior to 2003, 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 SFAS No. 123, Accounting for Stock-Based Compensation, and has
elected to apply these provisions prospectively, in accordance with SFAS No.
148, to all employee awards granted, modified, or settled after January 1, 2003.
Awards under the Company's plans vest
6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(Continued)
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 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.
- -------------------------------------------------------------------------------------------------------
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------------------
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------
Net income, as reported $15,271 $9,452 $6,632 $4,858
Add: Stock-based employee compensation
expense included in reported net income,
net of related tax effects 215 -- 66 --
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (620) (585) (207) (195)
------- ------ ------ ------
Pro forma net income $14,866 $8,867 $6,491 $4,663
======= ====== ====== ======
Earnings per share:
Basic - as reported $ 0.54 $ 0.33 $ 0.23 $ 0.17
Basic - pro forma $ 0.53 $ 0.31 $ 0.23 $ 0.17
Diluted - as reported $ 0.51 $ 0.31 $ 0.22 $ 0.16
Diluted - pro forma $ 0.50 $ 0.29 $ 0.21 $ 0.16
- -------------------------------------------------------------------------------------------------------
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
=======
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- --------------------------------------------------------------------------------
Actual Pro Forma
Nine Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Net sales $272,186 $231,731
Net income 15,271 10,167
Basic earnings per share 0.54 0.36
Diluted earnings per share 0.51 0.33
- --------------------------------------------------------------------------------
The Company also completed two insignificant acquisitions during 2003. Had
these acquisitions been completed on January 1, 2002, the Company's operating
results would not have been materially different than those reported.
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
8
increase, interest
expense increases. Conversely, if interest rates decrease, interest expense also
decreases.
At September 30, 2003, and for the nine months then ended, the Company had
no derivative instruments outstanding.
Item 2: AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 2003 vs. 2002
Net sales for the third quarter of 2003 were $99.5 million which was an
increase of $14.3 million, or 17% over the same period in 2002. The Company's
minerals segment accounted for 56% of net sales and 61% of the increase over the
third quarter of 2002. Environmental segment sales represented 38% of net sales
for the quarter and 35% of the increase. Transportation segment sales accounted
for 6% of the total, after eliminating intersegment sales, and 4% of the
increase over the third quarter of 2002.
Gross profit was $25.4 million compared with $21.3 million in the prior
year quarter. Gross margin improved to 25.5% from 25.0% 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 & administrative expenses totaled $15.4 million in the
quarter compared with $13.7 million in the prior year, an increase of 12%.
Higher compensation and pension costs primarily accounted for the increase over
the third quarter of 2002.
Operating profit for the third quarter of 2003 was $9.9 million compared
with $7.6 million in the prior year. The 31% increase resulted from higher net
sales.
Interest expense was $91 thousand in the quarter compared with $170
thousand in the prior year. The decrease was due to higher average debt levels
in the prior year quarter due to the acquisition of CSM that was completed in
the second quarter of 2002. Additionally, borrowing rates were lower in the
third quarter of 2003 compared with the prior year quarter. The Company's
borrowing rates are primarily based on the three-month LIBOR which has decreased
over the 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 $0.1 million in both
reporting periods.
Net income was $6.6 million in the third quarter of 2003 compared with
$4.9 million in the prior year. The increase was the result of the improvement
in net sales and operating profit described above. Diluted earnings per share
totaled $0.22 per share compared to $0.16 per share in the 2002 quarter.
Weighted average common and common equivalent shares outstanding increased by
approximately 2%
9
from the prior year period to 30.4 million. Average common shares outstanding
increased from the third quarter of 2002 primarily due to exercised stock
options.
Segment Analysis
----------------
- ----------------------------------------------------------------------------------------
Three Months Ended September 30,
------------------------------------------------------------
2003 2002 2003 vs. 2002
- ----------------------------------------------------------------------------------------
Minerals (Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Product sales $50,821 92.0% $42,608 91.6%
Shipping revenue 4,390 8.0% 3,894 8.4%
------ ------ ------ ------
Net sales 55,211 100.0% 46,502 100.0% 8,709 18.7%
------ ------ ------ ------
Cost of sales - product 40,051 72.5% 33,861 72.8%
Cost of sales - shipping 4,390 8.0% 3,894 8.4%
------ ------ ------ ------
Cost of sales 44,441 80.5% 37,755 81.2%
------ ------ ------ ------
Gross profit 10,770 19.5% 8,747 18.8% 2,023 23.1%
General, selling and
administrative expenses 4,715 8.5% 4,361 9.4% 354 8.1%
------ ------ ------ ------ -----
Operating profit 6,055 11.0% 4,386 9.4% 1,669 38.1%
- ----------------------------------------------------------------------------------------
Higher sales volumes from Colin Stewart Minchem, the domestic minerals
business, and the Asian business units accounted for the $8.7 million increase
in minerals net sales in the third quarter. Within CSM, the detergents business
generated higher sales than the prior year quarter, while the pet products and
oil well businesses were responsible for the increase in domestic minerals
sales.
Gross profit earned on higher domestic minerals sales accounted for
approximately 50% of the increase over the comparable quarter of 2002. Higher
sales at CSM and the Asian business units led to the remaining increase in gross
profit for the segment. Gross margin improved by 70 basis points as a result of
higher sales volumes, which reduced unit product costs.
An increase in compensation and employee benefit costs accounted for the
higher general, selling and administrative expenses incurred in the third
quarter of 2003.
- ----------------------------------------------------------------------------------------
Three Months Ended September 30,
------------------------------------------------------------
2003 2002 2003 vs. 2002
- ----------------------------------------------------------------------------------------
Environmental (Dollars in Thousands)
- ----------------------------------------------------------------------------------------
Product sales $35,064 91.6% $30,637 92.2%
Shipping revenue 3,203 8.4% 2,579 7.8%
------ ------ ------ ------
Net sales 38,267 100.0% 33,216 100.0% 5,051 15.2%
------ ------ ------ ------
Cost of sales - product 21,593 56.4% 18,951 57.1%
Cost of sales - shipping 3,203 8.4% 2,579 7.8%
------ ------ ------ ------
Cost of sales 24,796 64.8% 21,530 64.9%
------ ------ ------ ------
Gross profit 13,471 35.2% 11,686 35.1% 1,785 15.3%
General, selling and
administrative expenses 6,300 16.5% 5,736 17.3% 564 9.8%
------ ------ ------ ------ -----
Operating profit 7,171 18.7% 5,950 17.8% 1,221 20.5%
- ----------------------------------------------------------------------------------------
Lining technologies accounted for over 80% of the increase in sales over
the third quarter of 2002. The business unit experienced growth in both its
domestic and European markets. Building materials group sales increased, while
sales from the water treatment group declined due to lower sales from the
offshore business.
10
The 15% increase in gross profit over the 2002 third quarter corresponds
with the increase in lining technology sales.
An increase in compensation and employee benefit costs accounted for the
higher general, selling and administrative expenses incurred in the third
quarter of 2003.
- -------------------------------------------------------------------------------------------
Three Months Ended September 30,
--------------------------------------------------------------
2003 2002 2003 vs. 2002
- -------------------------------------------------------------------------------------------
Transportation (Dollars in Thousands)
- -------------------------------------------------------------------------------------------
Net sales $10,367 100.0% $ 8,591 100.0% $ 1,776 20.7%
Cost of sales 9,243 89.2% 7,710 89.7%
------- ------ ------- ------
Gross profit 1,124 10.8% 881 10.3% 243 27.6%
General, selling and
administrative expenses 647 6.2% 639 7.4% 8 1.3%
------- ------ ------- ------
Operating profit 477 4.6% 242 2.9% 235 97.1%
- -------------------------------------------------------------------------------------------
Intersegment sales contributed approximately 70% of the sales increase for
the segment over the third quarter of 2002. Higher traffic levels and new
customer sales accounted for the remainder of the increase. Gross margins
increased 50 basis points due to higher equipment utilization rates and better
sales pricing.
General, selling and administrative expenses were flat compared to the
prior year quarter.
- --------------------------------------------------------------------------------
Three Months Ended September 30,
-----------------------------------------
2003 2002 2003 vs. 2002
- --------------------------------------------------------------------------------
Corporate (Dollars in Thousands)
- --------------------------------------------------------------------------------
Intersegment shipping sales $(4,379) $(3,113)
Intersegment shipping costs (4,379) (3,113)
------- -------
Gross profit -- --
Corporate general, selling
and administrative expenses 2,802 1,863 939 50.4%
Nanocomposite business
development expenses 959 1,116 (157) -14.1%
------- ------- ----
Operating loss (3,761) (2,979) (782) 26.3%
- --------------------------------------------------------------------------------
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 general, selling and administrative expenses
related to higher compensation and employee benefit costs. Approximately 25% of
the increase over the third quarter of 2002 related to higher defined benefit
pension plan expenses. As disclosed in footnote 5, effective from 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 the fair value method for
all awards granted, modified or settled after January 1, 2003.
11
Lower nanocomposite development expenses were due to a decline in research
and development costs.
Nine months ended September 30, 2003 vs. 2002
Net sales for the nine months ended September 30, 2003 were $272.2 million
compared with $221.1 million for the prior year period. The minerals segment
accounted for 58% of net sales while the environmental and transportation
segments represented 35% and 7%, respectively. Minerals contributed
approximately 66% of the increase in net sales over the prior year period. The
environmental and transportation segments contributed 31% and 3%, respectively,
to the increase in net sales. The largest component of the increase in net sales
was Colin Stewart Minchem (CSM), which was acquired as of May 1, 2002, and
included in the minerals segment.
Gross profit was $67.2 million for the nine month period ended September
30, 2003 compared with $53.2 million for the 2002 period. The 26% increase in
gross profit resulted from the increase in net sales. Gross margin improved to
24.7% compared to 24.1% in the prior year period. The 60 basis point improvement
in gross margin was generated by the minerals segment.
General, selling and administrative expenses were $44.7 for the nine month
period ended September 30, 2003 compared with $38.9 in the prior year period.
Higher compensation and employee benefit costs primarily caused the increase
over the prior year period. Selling and administrative expenses at CSM for the
first four months of 2003 also contributed to the increase.
Operating profit was $22.5 million for the nine month period ended
September 30, 2003, compared with $14.4 million in the prior year period. The
improvement in operating profit followed the increase in sales and gross profit.
Operating profit margin for the nine month period ended September 30, 2003 was
8.3% compared with 6.5% in the prior year period.
Net interest expense was $293 thousand for the nine month period ended
September 30, 2003 compared with $410 thousand in the prior year period. Lower
average debt in the current year period accounted for the decline in interest
expense. Net other income was $271 thousand for the nine month period ended
September 30, 2003 compared with net other expense of $92 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 $7.7 million for the nine month period ended
September 30, 2003 compared with $5.0 million for the prior year period. The
increase followed the increase in pre-tax income which resulted from higher
operating profits described above. The effective tax rate for the current year
period was 34% compared with 36% for the prior year period. The 200 basis point
decline was due to lower tax provisions required for earnings generated in
foreign jurisdictions.
Net income was $15.3 million for the nine month period ended September 30,
2003 compared with $9.5 million for the prior year period. The increase resulted
from the improvement in sales and operating profit described above. Diluted
earnings per share totaled $0.51 per share for the current year period compared
with $0.31 per share for the 2002 period. Weighted average common and common
equivalent shares outstanding decreased by approximately 2% from the prior year
period to 29.8 million. The decrease is the result of stock repurchases executed
by the Company over the last twelve months.
12
Segment Analysis
----------------
- ------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------------------------------------
2003 2002 2003 vs. 2002
- ------------------------------------------------------------------------------------------
Minerals (Dollars in Thousands)
- ------------------------------------------------------------------------------------------
Product sales $144,724 91.1% $114,409 91.3%
Shipping revenue 14,206 8.9% 10,921 8.7%
-------- ------ -------- ------
Net sales 158,930 100.0% 125,330 100.0% 33,600 26.8%
-------- ------ -------- ------
Cost of sales - product 114,007 71.7% 91,666 73.1%
Cost of sales - shipping 14,206 9.0% 10,921 8.7%
-------- ------ -------- ------
Cost of sales 128,213 80.7% 102,587 81.8%
-------- ------ -------- ------
Gross profit 30,717 19.3% 22,743 18.2% 7,974 35.1%
General, selling and
administrative expenses 13,863 8.7% 11,836 9.4% 2,027 17.1%
-------- ------ -------- ------ ------
Operating profit 16,854 10.6% 10,907 8.8% 5,947 54.5%
- ------------------------------------------------------------------------------------------
Approximately 60% of the $33.6 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 30% of
the increase. Sales volume in the domestic metalcasting, oil drilling and pet
products businesses increased over the prior year period. The segment's
Asian-based mineral 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 110 basis points
to 19.3% for the current year period. The improvement was generated through
higher volume associated with the increase in sales over the prior year period,
and from lower production costs in the pet products business.
Approximately 70% of the increase in general, selling and administrative
expenses was attributed to CSM. Increases in compensation and employee benefit
costs for domestic personnel contributed most of the remaining increase.
- ------------------------------------------------------------------------------------------
Nine Months Ended September 30,
-------------------------------------------------------------
2003 2002 2003 vs. 2002
- ------------------------------------------------------------------------------------------
Environmental (Dollars in Thousands)
- ------------------------------------------------------------------------------------------
Product sales $88,287 92.3% $73,996 92.8%
Shipping revenue 7,382 7.7% 5,739 7.2%
------- ------ ------- ------
Net sales 95,669 100.0% 79,735 100.0% 15,934 20.0%
------- ------ ------- ------
Cost of sales - product 54,946 57.4% 45,987 57.7%
Cost of sales - shipping 7,382 7.7% 5,739 7.2%
------- ------ ------- ------
Cost of sales 62,328 65.1% 51,726 64.9%
------- ------ ------- ------
Gross profit 33,341 34.9% 28,009 35.1% 5,332 19.0%
General, selling and
administrative expenses 18,466 19.4% 16,538 20.7% 1,928 11.7%
------- ------ ------- ------ ------
Operating profit 14,875 15.5% 11,471 14.4% 3,404 29.7%
- ------------------------------------------------------------------------------------------
Higher shipments were realized in the lining technology business in the
domestic and European markets, which accounted for 80% of the increase in net
sales over the 2002 period. Building materials accounted for the remaining
portion of the increase.
13
The 19% increase in gross profit over the prior year period corresponds
with the increase in sales. Gross margin declined by 20 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 compensation and benefit costs accounted for the increase in
general, selling and administrative expenses over the prior year period.
- --------------------------------------------------------------------------------------
Nine Months Ended September 30,
---------------------------------------------------------
2003 2002 2003 vs. 2002
- --------------------------------------------------------------------------------------
Transportation (Dollars in Thousands)
- --------------------------------------------------------------------------------------
Net sales $28,554 100.0% $24,053 100.0% $4,501 18.7%
Cost of sales 25,427 89.0% 21,570 89.7%
------- ------ ------- ------
Gross profit 3,127 11.0% 2,483 10.3% 644 25.9%
General, selling and
administrative expenses 1,875 6.6% 1,786 7.4% 89 5.0%
------- ------ ------- ------ ------
Operating profit 1,252 4.4% 697 2.9% 555 79.6%
- --------------------------------------------------------------------------------------
Intersegment sales contributed approximately 65% 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 70 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.
- --------------------------------------------------------------------------------
Nine Months Ended September 30,
-----------------------------------------
2003 2002 2003 vs. 2002
- --------------------------------------------------------------------------------
Corporate (Dollars in Thousands)
- --------------------------------------------------------------------------------
Intersegment shipping sales (10,967) $(8,046)
Intersegment shipping costs (10,967) (8,046)
------- -------
Gross profit -- --
Corporate general, selling
and administrative expenses 7,535 5,342 2,193 41.1%
Nanocomposite business
development expenses 2,907 3,356 (449) -13.4%
------- ------- ------
Operating loss (10,442) (8,698) (1,744) 20.1%
- --------------------------------------------------------------------------------
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. Included in
compensation costs in the current period were stock-options granted to employees
in the current year. As disclosed in footnote 5, effective from 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 the fair value for all awards
granted, modified or settled after January 1, 2003.
14
Lower nanocomposite development expenses were due to a decline in research
and development costs.
Liquidity and Capital Resources
Working capital was $72.2 million and $58.5 million at September 30, 2003
and December 31, 2002, respectively. The current ratio at September 30, 2003 was
2.2-to-1 compared with 2.1-to-1 at December 31, 2002.
Net cash provided by operating activities was $15.4 million for the nine
months ended September 30, 2003 compared with $15.3 million in the 2002 nine
month period. Accounts receivable increased by approximately $18.6 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 prior year nine month period. Current liabilities
increased from the December 31, 2002 amount by $10.9 million. The increase was
associated with higher accruals and trade accounts payable.
Capital expenditures were approximately $10.3 million in the first nine
months of 2003 compared with $10.1 million in the prior year period. The Company
completed two acquisitions in the third quarter that are associated with its
building materials group within its Environmental segment. Total cash
consideration for the acquisitions was $3.0 million.
Net cash used in financing activities totaled $8.4 million in the nine
month period ended September 30, 2003. Borrowings required for the acquisition
of CSM led to net cash provided by financing activities of $8.6 million for the
nine month period ended September 30, 2002. Dividends paid on common stock were
approximately $3.1 million and the Company repurchased 267 thousand shares of
common stock in the first nine 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 $1.8 million in proceeds from the exercise of stock options by
employees and directors in the first nine months of 2003.
Effective November 1, 2003, the Company agreed to a new revolving credit
facility which provides for a total borrowing capacity of $100 million. The
agreement, which has a three-year term, allows the Company to borrow an
additional $25 million from the four financial institutions participating in the
facility at the consent of the administrator. Debt covenant conditions are
similar to those included in the previous revolving credit facility. Borrowing
rates range from 60 to 125 basis points above 3-month LIBOR depending upon
certain debt covenant conditions. As of November 1, 2003, the Company had
approximately $91 million of unused, committed credit lines. The borrowing
capability of the Company and 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
15
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 Disclosures About Market Risk
There have been no material changes in the Company's market risk during
the three months ended September 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.
PART II - OTHER INFORMATION
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 July 21, 2003,
furnishing a press release disclosing the Company's operating
results for the second quarter ended June 30, 2003.
16
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: November 12, 2003 /s/ Lawrence E. Washow
------------------------- ---------------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Date: November 12, 2003 /s/ Gary L. Castagna
------------------------- ---------------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financia
Officer and Principal Accounting Officer
CERTIFICATIONS
11/12/03 Lawrence E. Washow
11/12/03 Gary L. Castagna
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)
10.15 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)
10.31 Credit Agreement by and among AMCOL International Corporation and Harris
Trust and Savings Bank, individually and as agent, Wells Fargo Bank,
N.A., Bank of America N.A. and the Northern Trust Company dated October
31, 2003
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.
(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.
(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.
(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.
(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.
18