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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark one)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _________
Commission File Number: 0-15661
AMCOL INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-0724340
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One North Arlington,
1500 West Shure Drive, Suite 500
Arlington Heights, Illinois 60004-7803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 394-8730
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.01 par value Common Stock
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The aggregate market value of the registrant's $.01 par value Common Stock
held by non-affiliates of the registrant (based upon the per share closing price
of $8.00 per share on June 30, 2003, and, for the purpose of this calculation
only, the assumption that all of the registrant's directors and executive
officers are affiliates) was approximately $166.4 million.
Registrant had 29,260,056 shares of $.01 par value Common Stock
outstanding as of February 26, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement, which will be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K, are incorporated by reference
into Part III hereof.
PART I
Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South
Dakota in 1924 as the Bentonite Mining & Manufacturing Company. Its name was
changed to American Colloid Company in 1927, and in 1959, the Company was
reincorporated in Delaware. In 1995, its name was changed to AMCOL International
Corporation. Except as otherwise noted or indicated by context, the term
"Company" refers to AMCOL International Corporation and its subsidiaries.
The Company operates in two major industry segments: minerals and
environmental. The Company also operates a transportation business. The minerals
segment mines, processes and distributes clays and products with similar
applications to various industrial and consumer markets. The environmental
segment processes and distributes clays and products with similar applications
for use as a moisture barrier in commercial construction, landfill liners and in
a variety of other industrial and commercial applications. The transportation
segment includes a long-haul trucking business and a freight brokerage business,
which provide services to both the Company's plants and unrelated customers.
The following table sets forth the percentage contributions to net sales
of the Company attributable to its minerals, environmental and transportation
segments for the last three calendar years. The percentages include intersegment
shipping revenues.
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Percentage of Sales
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2003 2002 2001
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Minerals 57% 55% 52%
Environmental 33% 34% 36%
Transportation 10% 11% 12%
--- --- ---
100% 100% 100%
=== === ===
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Net revenues, operating profit, assets, depreciation, depletion and
amortization, capital expenditures and research and development expenditures
attributable to each of the Company's business segments are set forth in Note 3
of the Company's Notes to Consolidated Financial Statements included elsewhere
herein.
DISCONTINUED OPERATIONS
In 2000, the Company closed its U.K. cat litter business. Certain assets
were sold to various outside parties for $.7 million. The closure was completed
in 2001. The U.K. cat litter business was a component entity of the Company's
minerals segment.
In 2001, the Company sold its U.K. metalcasting business to a group
comprised in part of former management of the business. Included in the sale
were machinery and equipment. The acquirer entered into a license agreement for
the right to use trademarks for a period of 10 years, and leases land and
buildings from the Company. The Company did not receive any proceeds from the
sale. The U.K. metalcasting business was a component entity of the Company's
minerals segment.
In 2003, the Internal Revenue Service concluded audits which resulted in a
reduction of the Company's income taxes payable of approximately $8.9 million
related to the sale of the U.K. metalcasting and closure of the U.K. cat litter
businesses. Those audits resulted in an actual tax liability that was lower than
the estimate of taxes payable related to those periods. Therefore, the Company
adjusted its estimate of taxes payable to reflect the actual amount due as of
December 31, 2003 and recorded $8.9 million of income to discontinued
operations.
2
MINERALS
The Company's minerals business is principally conducted through its
wholly-owned subsidiaries: American Colloid Company in the United States and
Canada; Colin Stewart Minchem Limited in the United Kingdom; Volclay Siam Ltd.
in Thailand; Volclay Korea Ltd. in South Korea; Volclay Pty., Ltd. in Australia;
and through its joint venture companies: Volclay de Mexico in Mexico; Ashapura
Volclay Ltd. in India; Egypt Mining & Drilling Chemicals Co. in Egypt; Volclay
DongMing Industrial Minerals Co. in China; and a 19% equity interest in Nissho
Iwai Bentonite Company in Japan. The Company also has a 20% equity interest in
Ashapura Minechem Ltd., a publicly traded Indian bentonite producer.
Commercially produced bentonite is a type of montmorillonite clay found in
beds ranging in thickness from two to 50 feet under overburden of up to 60 feet.
There are two basic types of bentonite, each having different chemical and
physical properties. These are commonly known as sodium bentonite and calcium
bentonite. Sodium bentonite is generally referred to as Western bentonite
because it predominately occurs in the Western United States. Sodium bentonites
of lesser purity occur outside the United States. Calcium bentonite is generally
referred to as Southern bentonite in the United States and as fuller's earth
outside the United States. Calcium bentonites mined outside the United States
are commonly activated with sodium carbonate to produce properties similar to
natural sodium bentonite.
The Company's principal bentonite products are marketed under various
internationally registered trade names, including VOLCLAY(R), PANTHER CREEK(R),
PREMIUM GEL(R) and ADDITROL(R). The Company's cat litter is sold under various
trade names and private labels. Trade names include NATURAL SELECT(R), CAREFREE
KITTY(R), PREMIUM CHOICE(R), CAT TAILS(R), CATS PAW(R) and PAMPER CAT(R).
Principal Products and Markets
Metalcasting. In the formation of sand molds for metal castings, sand is
bonded with bentonite and various other additives to yield desired casting form
and surface finish. The Company serves the foundry and casting industry
throughout North America, Asia and Australia with custom-blended bentonite and
allied non-bentonite products to strengthen sand molds for cast auto parts, farm
implements, railcars, home appliances and metallurgical products. The blended
mineral binders containing sodium and calcium bentonite are sold under the trade
name ADDITROL(R).
Cat Litter. The Company produces and markets sodium bentonite-based,
scoopable (clumping), traditional and alternative cat litters as well as
specialty pet products to grocery and drug stores, mass merchandisers, wholesale
clubs and pet specialty stores throughout the U.S. The Company's scoopable
products' clump-forming capability traps urine, allowing for easy removal of the
odor-producing elements from the litter box. The Company's products are marketed
under various trade names.
Specialty Minerals. This category includes several business units that are
major suppliers of gelling, binding, thickening, plasticizing and emulsifying
agents for cosmetics, pharmaceuticals, drilling fluids or household products.
The Company is a leading producer of products for agricultural use. The Company
is also a global supplier of nanoclays.
Detergents. The Company supplies high-grade agglomerated bentonite to the
detergent industry.
Health and Beauty. The Company manufactures polymer and purified grades of
sodium bentonite-based products for the pharmaceutical and cosmetics industries.
Bentonite also acts as a thickening and suspension agent in lotions.
Iron Ore Pelletizing. The Company supplies sodium bentonite for use as a
pelletizing aid in the production of taconite pellets.
Well Drilling. Sodium bentonite and leonardite, a form of oxidized lignite
mined and processed by the Company in North Dakota, are components of drilling
fluids used in oil and gas well drilling. Bentonite imparts thickening and
suspension properties, which facilitate the transport of rock cuttings to the
surface during the drilling process. Drilling
3
fluids lubricate the drilling bit and coat the underground formations to prevent
hole collapse and drill bit seizing. The Company's primary trademark for this
application is PREMIUM GEL(R).
Other Industrial. The Company produces bentonite and bentonite blends for
the construction industry, which are used as a plasticizing agent in cement,
plaster and bricks, and as an emulsifier in asphalt.
Agricultural. Sodium bentonite and calcium bentonite are sold as
pelletizing aids in livestock feed and as anti-caking agents for livestock feed
in storage or during transit.
Sales and Distribution
In 2003, the top five customers of the minerals segment accounted for
approximately 35% of the segment sales worldwide.
The Company has established industry-specialized sales groups staffed with
technically oriented salespersons serving each of the Company's major markets.
Certain groups have networks of distributors and representatives, including
companies that warehouse products at strategic locations.
Most customers in the metalcasting industry are served on a direct basis
by teams of Company sales, technical and manufacturing personnel. The Company
also provides training courses and laboratory testing for customers who use the
Company's products in the metalcasting process.
Sales to the oil and gas well drilling industry are primarily made
directly to oil and gas well drilling fluid service companies, both under the
Company's trade name and under private label. Because bentonite is a major
component of drilling fluids, two service companies have captive bentonite
operations. The Company's potential market, therefore, generally is limited to
those service organizations that are not vertically integrated or do not have
long-term supply arrangements with other bentonite producers.
Sales to the cat litter market are made on a direct basis and through
industry brokers. All sales to the iron ore pelletizing industry are made
directly to the end user. Sales to the Company's remaining markets are made
primarily through independent distributors and representatives.
Competition
The Company is one of the largest producers of bentonite products
globally. There is substantial domestic and international competition, which is
essentially a matter of product quality, price, logistics, service and technical
support. There are at least 15 other major sodium bentonite or sodium activated
calcium bentonite producers throughout the world including several importers
into the U.S. market. There are also numerous major producers of calcium
bentonite as well as various regional suppliers in the areas the Company serves.
Some of the producers are companies primarily in other lines of business with
substantially greater financial resources than the Company.
Seasonality
Although business activities in certain portions of the industries in
which the Company's mineral products are sold, e.g. oil and gas well drilling
and construction, are subject to seasonal factors such as weather, the Company
does not consider its minerals business, as a whole, to be seasonal.
4
ENVIRONMENTAL
Principal Products and Markets
Through its wholly-owned subsidiaries, Colloid Environmental Technologies
Company (CETCO) and CETCO Oilfield Services, Inc. in the United States and
Canada, CETCO Korea Ltd. in South Korea, CETCO Poland Sp. z o.o. in Poland, and
CETCO (Europe) Ltd. in the United Kingdom, the Company sells sodium bentonite,
products containing sodium bentonite, and other products, services and equipment
for use in environmental and construction applications.
Lining Technologies. CETCO sells bentonite and its geosynthetic clay liner
products under the BENTOMAT(R) and CLAYMAX(R) trade names for lining and capping
landfills and for containment in tank farms, storm water containment systems,
waste stabilization lagoons, slurry walls, sewage lagoons and mine site and
wetlands reclamation applications.
Building Materials. The Company's VOLCLAY(R) Waterproofing System is sold
to the non-residential construction industry. This line includes VOLTEX(R), a
waterproofing composite comprised of two polypropylene geotextiles filled with
sodium bentonite. VOLTEX(R) is installed to prevent leakage through underground
foundation walls and slabs. The following products round out the principal
components of the product line: VOLCLAY PANELS(R), also used for below-grade
waterproofing of walls and slabs; WATERSTOP-RX(R), a joint sealant product; and
VOLCLAY SWELLTITE(R), a waterproofing membrane for concrete split slabs and
plaza areas. In addition, the Company's Strong Seal and Ducks Back roofing
underlayment systems are sold to the residential and non-residential roofing
industry.
Industrial Water Treatment. Bentonite-based flocculants and customized
equipment are used to remove emulsified oils and heavy metals from wastewater.
Bentonite-based products are formulated to solidify liquid waste for proper
disposal in landfills. These products are sold primarily under the SYSTEM-AC(R),
RM-10(R) and SORBOND(R) trade names.
Oilfield Services. CETCO's oilfield services group employs CRUDESORB(R)
and CRUDESEP(R) filtration technology, used primarily on offshore oil production
platforms. CETCO employs several technologies to allow platform operators to
maintain compliance with regulatory requirements governing discharge of waste
generated during oil production. CETCO's filtration technology is marketed with
all necessary equipment, proprietary filter media and trained professional
service personnel. The Company is also actively involved in providing wastewater
treatment solutions to pipeline operators to enable them to meet wastewater
discharge requirements. Well testing services are also provided by the Company
as a result of the acquisition of Lafayette Well Testing, Inc., completed in
early 2004. The Company provides equipment and personnel for production well
control, clean-up, unload, separation, measure of component flow and disposal of
fluids from oil and gas wells.
Drilling Products. CETCO's drilling products are used in environmental and
geotechnical drilling applications, horizontal directional drilling, mineral
exploration and foundation construction. The products are used to install
monitoring wells, facilitate horizontal drilling and water wells, rehabilitate
existing water wells and seal abandoned exploration drill holes. VOLCLAY(R)
GROUT, HYDRAUL-EZ(R), BENTOGROUT(R) and VOLCLAY(R) TABLETS are among the trade
names for products used in these applications. Geothermal grouting applications
utilizing GEOTHERMAL GROUT(TM) represent a developing area for CETCO drilling
products. VOLCLAY(R) SHORE PAC is used in special foundation drilling
applications.
Competition
CETCO principally competes with eight regional geosynthetic clay liner
manufacturers worldwide and several suppliers of alternative liner technologies.
The construction and wastewater treatment product lines are specialized
businesses that compete primarily with alternative technologies. The groundwater
monitoring, well drilling and sealants products compete with the Company's
traditional rivals in the sodium bentonite business. The oilfield services group
5
competes with several larger oil services companies using different technology.
Competition is based on product quality, service, price, technical support and
availability of product. Historically, the competition has been vigorous.
Sales and Distribution
CETCO products are sold domestically and internationally. CETCO sells most
of its products through direct sales and marketing personnel specializing in the
Company's major product lines. CETCO employs technically oriented marketing
personnel to support its network of distributors and representatives for several
other product lines. Oilfield Services customers are primarily major oil
companies to which products are sold on a direct basis.
Seasonality
Much of the business in the environmental sector is impacted by weather
and soil conditions. Many of the products cannot be applied in harsh weather
conditions and, as such, sales and profits tend to be stronger during the period
from April through October. As a result, the Company considers the business of
this segment to be seasonal.
MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS
Mineral Reserves
The Company has reserves of sodium and calcium bentonite at various
locations throughout North America, including Wyoming, South Dakota, Montana and
Alabama. The Company, indirectly through its joint venture companies, has access
to bentonite deposits in China, Egypt, India and Mexico. At 2003 consumption
rates and product mix, the Company estimates its proven reserves of commercially
usable sodium bentonite at approximately 22 years. The Company estimates its
proven reserves of calcium bentonite at approximately 23 years in North America.
While the Company, based upon its experience, believes that its reserve
estimates are reasonable and its title and mining rights to its reserves are
valid, the Company has not obtained any independent verification of such reserve
estimates or such title or mining rights. The Company owns or controls the
properties on which its reserves are located through long-term leases, royalty
agreements and patented and unpatented mining claims. A majority of the
Company's bentonite reserves are owned. All of the properties on which the
Company's reserves are located are either physically accessible for the purposes
of mining and hauling or the cost of obtaining physical access would not be
material.
To retain possessory rights in unpatented mining claims, a fee of $100 per
year for each unpatented mining claim is required. The validity of title to
unpatented mining claims is dependent upon numerous factual matters. The Company
believes that the unpatented mining claims that it owns have been located in
compliance with all applicable federal, state and local mining laws, rules and
regulations. The Company is not aware of any material conflicts with other
parties concerning its claims. From time to time, members of Congress and
members of the executive branch of the federal government have proposed
amendments to existing federal mining laws. The various amendments would have
had a prospective effect on mining operations on federal lands and include,
among other things, the imposition of royalty fees on the mining of unpatented
claims, the elimination or restructuring of the patent system and an increase in
fees for the maintenance of unpatented claims. To the extent that future
proposals may result in the imposition of royalty fees on unpatented lands, the
mining of the Company's unpatented claims may become uneconomic and royalty
rates for privately leased lands may be affected. The Company cannot predict the
form that any amendments might ultimately take or whether or when any such
amendments might be adopted.
The Company maintains a continuous program of worldwide exploration for
additional reserves and attempts to acquire reserves sufficient to replenish its
consumption each year, but it cannot assure that additional reserves will
continue to become available.
The Company oversees all of its mining operations, including its
exploration activity and securing the necessary state and federal mining
permits.
6
The following table shows a summary of minerals sold by the Company from
active mining areas for the last 3 years in short tons, as well as mineral
reserves by major mineral category.
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All amounts are in Tons Sold
thousands of tons ----------------------
2003 2002 2001 Wet Tons Assigned Unassigned Conversion
of Reserves Reserves Reserves Factor
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Sodium Bentonite
Assigned
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Belle/Colony, WY/SD 1,088 941 876 20,047 20,047 -- 76.22%
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Lovell, WY 477 379 382 25,139 25,139 -- 76.22%
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TOTAL ASSIGNED 1,565 1,320 1,258 45,186 45,186 --
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Other / Unassigned
(SD, WY, MT, NV) 1 62 152 65,786 36 65,750 76.22%
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TOTAL OTHER / UNASSIGNED 1 62 152 65,786 36 65,750
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TOTAL SODIUM BENTONITE 1,566 1,381 1,410 110,972 45,222 65,750 --
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41% 59%
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Calcium Bentonite
Assigned
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Sandy Ridge, AL 132 138 145 4,165 4,165 -- 72.70%
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Chao Yang, Liaoning, China 57 31 -- 2,733 2,733 -- 71.00%
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TOTAL ASSIGNED 189 169 145 6,898 6,898 --
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Other / Unassigned -- -- -- 115 -- 115 77.31%
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TOTAL OTHER / UNASSIGNED -- -- -- 115 -- 115
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TOTAL CALCIUM BENTONITE 189 169 145 7,013 6,898 115
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98% 2%
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Leonardite
Gascoyne, ND 34 25 25 612 612 -- 63.43%
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TOTAL LEONARDITE 34 25 25 612 612 --
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100%
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GRAND TOTALS 1,789 1,575 1,580 118,597 52,732 65,865
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44% 56%
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All amounts are in Mining Claims
thousands of tons --------------------------------------
Owned Unpatented Leased
**
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Sodium Bentonite
Assigned
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Belle/Colony, WY/SD 865 169 19,013
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Lovell, WY 14,717 10,013 409
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TOTAL ASSIGNED 15,582 10,182 19,422
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Other / Unassigned
(SD, WY, MT, NV) 55,448 4,154 6,184
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TOTAL OTHER / UNASSIGNED 55,448 4,154 6,184
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TOTAL SODIUM BENTONITE 71,030 14,336 25,606
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64% 13% 23%
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Calcium Bentonite
Assigned
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Sandy Ridge, AL 1,874 -- 2,291
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Chao Yang, Liaoning, China -- -- 2,733
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TOTAL ASSIGNED 1,874 -- 5,024
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Other / Unassigned -- -- 115
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TOTAL OTHER / UNASSIGNED -- -- 115
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TOTAL CALCIUM BENTONITE 1,874 -- 5,139
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27% 73%
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Leonardite
Gascoyne, ND -- -- 612
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TOTAL LEONARDITE -- -- 612
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100%
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GRAND TOTALS 72,904 14,336 31,357
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61% 12% 27%
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** Quantity of reserves that would be owned if patent was granted.
Assigned reserves means reserves which could be reasonably expected to be
processed in existing plants. Unassigned reserves means reserves which will
require additional expenditures for processing facilities. Conversion factor
means the percentage of reserves that will be available for sale after
processing.
The Company estimates that available supplies of other materials utilized
in its minerals business are sufficient to meet its production requirements for
the foreseeable future.
Mining and Processing
Bentonite is surface mined, generally with large earthmoving scrapers, and
then loaded into trucks and off-highway-haul wagons for movement to processing
plants. The mining and hauling of the Company's clay is done both by the Company
and by independent contractors. Each of the Company's bentonite processing
plants generally maintains stockpiles of unprocessed clay equaling approximately
4 to 8 months production requirements.
At the processing plants, bentonite is dried, crushed and sent through
grinding mills, where it is sized to customer requirements, then chemically
modified where needed and transferred to silos for automatic bagging or bulk
shipment. Virtually all production is shipped as processed rather than stored
for inventory.
7
Product Development and Patents
The Company works actively with customers in each of its major markets to
develop commercial applications of specialized grades of bentonite. It maintains
a bentonite research center and laboratory testing facility adjacent to its
corporate headquarters. When a need for a product that will accomplish a
particular goal is perceived, the Company works to develop the product, research
its marketability and study the feasibility of its production. The Company also
co-develops products with customers, or others, as needs arise. The Company's
development efforts emphasize markets with which it is familiar and products for
which it believes there is a viable market.
The Company holds a number of U.S. and international patents covering the
use of bentonite and products containing bentonite. The Company follows the
practice of obtaining patents on new developments whenever feasible. The
Company, however, does not consider that any one or any combination of such
patents is material to its minerals and environmental businesses as a whole.
Research and Development
All Company business segments share research and laboratory facilities
adjacent to the corporate headquarters. Technological developments are shared
among the companies, subject to license agreements where appropriate.
Regulation and Environmental
The Company believes it is in material compliance with applicable
regulations now in effect for surface mining. Since reclamation of exhausted
mining sites has been a regular part of the Company's surface mining operations
for the past 35 years, maintaining compliance with current regulations has not
had a material effect on mining costs. Reclamation costs are reflected in the
prices of the bentonite sold.
The grinding and handling of dried clay is part of the production process
and because it generates dust, the Company's mineral processing plants are
subject to applicable clean air standards (including Title V of the Clean Air
Act). All of the Company's plants are equipped with dust collection systems. The
Company has not had, and does not presently anticipate, any significant
regulatory problems in connection with its dust emission, though it expects
ongoing expenditures for the maintenance of its dust collection systems and
required annual fees.
The Company's mineral operations are also subject to other federal, state,
local and foreign laws and regulations relating to the environment and to health
and safety matters. Certain of these laws and regulations provide for the
imposition of substantial penalties for noncompliance. While the costs of
compliance with, and penalties imposed under, these laws and regulations have
not had a material adverse effect on the Company, future events, such as changes
in or modified interpretations of existing laws and regulations, enforcement
policies, and further investigation or evaluation of potential health hazards of
certain products, may give rise to additional compliance and other costs that
could have a material adverse effect on the Company.
TRANSPORTATION
The Company operates a long-haul trucking business and a freight brokerage
business primarily for delivery of finished products throughout the continental
United States. Through its transportation operation, the Company is better able
to control costs, maintain delivery schedules and assure equipment availability
for delivery of its products. The long-haul trucking subsidiary performs
transportation services on outbound movements from the Company's production
plants and attempts to haul third parties' products on return trips whenever
possible. In 2003, approximately 37% of the revenues of this operation involved
services provided to the Company's domestic minerals and environmental segments.
8
CORPORATE ACTIVITIES - NANOCOMPOSITE PRODUCT DEVELOPMENT
The Company is always seeking to develop broader-based technologies that
may use bentonite for new, value-added applications. One such technology is
nanocomposites for the plastics industry. In 1995, the Company established its
Nanocor subsidiary to develop surface-modified bentonites suitable for the
emerging nanocomposite market. The primary raw material is bentonite. For some
applications, material will be purchased from third-party suppliers.
Surface-treatment chemicals, added in the production process, are readily
available on the merchant market.
The Company continues to focus its development on the use of bentonite as
a functional additive for plastics. The technology consists of dispersing highly
purified bentonite of nanometer size (one-billionth of a meter) in plastic
resins. Nanocor has identified commercial applications for Nanomer(R) products
in the consumer packaging, engineered products and performance coatings markets.
Plastic nanocomposites provide improved physical properties in products used in
these markets. Those improved physical properties include heat resistance,
dimensional stability and strength for engineered materials and gas, and
moisture barrier for packaging materials.
The Company has a nanocomposite production facility in Aberdeen,
Mississippi. Sales to date have been insignificant. All costs, in excess of
sales, associated with the development, production and sales of nanocomposites
are included in corporate costs.
During 2002, the Company reviewed its alternatives in improving the sales
opportunities for its nanocomposite products. In connection with that review,
the Company determined its best interest was served by finding partners that had
a strong presence in markets where nanocomposites could gain significant
business. The result was the execution of two strategic alliance agreements in
2003.
In January 2003, an agreement was reached with Mitsubishi Gas Chemical
Company, Inc. (MGC) which involves the manufacture and sale of high-barrier
plastics that will combine the Company's patented nanocomposite technology and
MXD6, a form of nylon. MGC is the world's largest producer of MXD6, which is an
established product used in consumer and industrial packaging due to its
inherent gas barrier properties. A MXD6-nanocomposite has significantly higher
gas-barrier properties, which will greatly improve sales potential in the
packaging market. MGC will lead sales and marketing of the product line with
assistance from the Company's sales staff. Additionally, the companies will
combine research and development resources to create new product variations. The
Company has licensed to MGC its intellectual property that relates to MXD6. In
addition to the sale of Nanomer products to MGC for use in the production of the
MXD6-nanocomposite, the Company will earn revenue from the profit generated from
sales of those nanocomposites by MGC.
The Company also reached an agreement with PolyOne Corporation (PolyOne)
in January 2003 that involves the sales, marketing and development of
polyolefin-nanocomposite concentrates and, in some cases, nanocomposite
plastics. PolyOne is the world's largest polymer services company which includes
the production of plastic compounds. The focus of the alliance will be on
improving strength and fire-resistant properties of polyolefin plastics as well
as their heat stability, gas barrier and electrostatic dissipation. Polyolefins
include a wide variety of plastic resins that are used in a multitude of
consumer and industrial products, including the electronics, telecommunications,
automotives, household and packaging sectors. The companies believe that
polyolefin-nanocomposite concentrates will be easy to process and allow
production of lighter weight plastics. PolyOne will lead sales of the products
with assistance from the Company's personnel, and the companies will combine
research and development resources engaged in the creation of
polyolefin-nanocomposite compounds. Similar to its alliance agreement with MGC,
the Company has licensed its intellectual property that relates to
polyolefin-nanocomposites to PolyOne. In addition to earning profits from the
sale of Nanomer products to PolyOne for use in the production of
polyolefin-nanocomposites, the Company will earn revenue from the profit
generated from sales of those nanocomposites.
Sales to date from these alliances have been insignificant.
9
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 34% of the Company's 2003 net sales were to customers in
countries other than the United States and Canada. To enhance its overseas
market penetration, the Company maintains mineral processing plants in the
United Kingdom, China, Australia, South Korea, Poland and Thailand, as well as a
blending plant in Canada. Through joint ventures, the Company also has the
capability to process minerals in Egypt, India and Mexico. Chartered vessels
deliver large quantities of the Company's bulk, dried sodium bentonite to the
plants in the United Kingdom, Australia, Thailand and South Korea where it is
processed and mixed with other clays and distributed throughout Europe,
Australia and Southeast Asia. The Company's U.S. bentonite is also shipped in
bulk to Japan where it is sold by the Japanese joint venture. In addition, the
Company also maintains a worldwide network of independent dealers, distributors
and representatives.
The Company manufactures geosynthetic clay liners in the United Kingdom,
Poland and South Korea, primarily for the European and Asian markets.
The Company's international operations are subject to the usual risks of
doing business abroad, such as currency fluctuations and devaluation,
restrictions on the transfer of funds, and import and export duties.
See Note 3 of the Company's Notes to Consolidated Financial Statements
included elsewhere herein. This Note is incorporated by reference for sales
attributed to foreign operations and export sales from the United States.
EMPLOYEES
As of December 31, 2003, the Company employed 1,185 persons, 403 of whom
were employed outside of the United States. At December 31, 2003, there were
approximately 745, 352 and 27 persons employed in the Company's minerals,
environmental and transportation segments, respectively, along with 61 corporate
employees. The corporate employees include personnel engaged in the
nanocomposite research and development effort. Operating plants are adequately
staffed, and no significant labor shortages are presently foreseen.
Approximately 43 of the Company's employees in the United States are represented
by four labor unions, all of which have entered into separate collective
bargaining agreements with the Company. Employee relations are considered good.
AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements and other information filed by the Company at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C., 20549. Please call
(800) SEC-0330 for further information on the Public Reference Room. The SEC
maintains a website that contains reports, proxy and information statements and
other information regarding issuers that file electronically with the SEC. The
Company's filings are also available to the public at the website maintained by
the SEC, www.sec.gov.
The Company's principal Internet address is www.amcol.com. The Company's
annual, quarterly and current reports, and amendments to those reports are
available free of charge on www.amcol.com, as soon as reasonably practicable
after the Company electronically files such material with, or furnishes it to,
the SEC.
10
Item 2. Properties
The Company and its subsidiaries operate the following principal plants,
mines and other facilities, all of which are owned, except as noted below. The
Company also has numerous other facilities which blend Additrol (R), package cat
litter and chromite sand, warehouse products and serve as sales offices.
===============================================================================================================================
LOCATION PRINCIPAL FUNCTION
- -------------------------------------------------------------------------------------------------------------------------------
MINERALS
- -------------------------------------------------------------------------------------------------------------------------------
Belle Fourche, SD Mine and process sodium bentonite
- -------------------------------------------------------------------------------------------------------------------------------
Colony, WY (two plants) Mine and process sodium bentonite, package cat litter
- -------------------------------------------------------------------------------------------------------------------------------
Gascoyne, ND Mine and process leonardite
- -------------------------------------------------------------------------------------------------------------------------------
Lovell, WY (1) Mine and process sodium bentonite
- -------------------------------------------------------------------------------------------------------------------------------
Sandy Ridge, AL Mine and process calcium bentonite; blend ADDITROL(R)
- -------------------------------------------------------------------------------------------------------------------------------
Chao Yang, Liaoning, China (2) Mine and process calcium bentonite
- -------------------------------------------------------------------------------------------------------------------------------
Geelong, Victoria, Australia (1)(3) Process bentonite; blend ADDITROL(R)
- -------------------------------------------------------------------------------------------------------------------------------
Rayong, Thailand Process bentonite
- -------------------------------------------------------------------------------------------------------------------------------
Winsford, Cheshire, U.K. Process calcium bentonite and other minerals
- -------------------------------------------------------------------------------------------------------------------------------
ENVIRONMENTAL
- -------------------------------------------------------------------------------------------------------------------------------
Broussard, LA Environmental Offshore operations and distribution
- -------------------------------------------------------------------------------------------------------------------------------
Fairmount, GA Manufacture Bentomat(R)and Claymax(R) geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
Lovell, WY (1) Manufacture Bentomat(R)and Claymax(R) geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
Villa Rica, GA Manufacture components for geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
Birkenhead, Merseyside, U.K. (1)(3) Manufacture Bentomat(R) geosynthetic clay liner; research laboratory;
headquarters for CETCO (Europe) Ltd.
- -------------------------------------------------------------------------------------------------------------------------------
Pyeongtaek, South Korea Manufacture Bentomat(R) geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
Suzhou, Jiangsu, China Manufacture Bentomat(R) geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
Szczytno, Poland Manufacture Bentomat(R)and Claymax(R) geosynthetic clay liners
- -------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION
- -------------------------------------------------------------------------------------------------------------------------------
Scottsbluff, NE Transportation headquarters and terminal
- -------------------------------------------------------------------------------------------------------------------------------
CORPORATE
- -------------------------------------------------------------------------------------------------------------------------------
Arlington Heights, IL (3) Corporate headquarters; CETCO headquarters; American Colloid Company
headquarters; Nanocor, Inc. headquarters; research laboratory
- -------------------------------------------------------------------------------------------------------------------------------
Aberdeen, MS Process purified bentonite (Nanocor, Inc.)
- -------------------------------------------------------------------------------------------------------------------------------
(1) Shared facilities between minerals and environmental segments.
(2) 96% owned joint venture.
(3) Certain offices and facilities are leased.
Item 3. Legal Proceedings
The Company is party to a number of lawsuits arising in the normal course
of its business. The Company does not believe that any pending litigation will
have a material adverse effect on its consolidated financial position.
The Company's processing operations require permits from various
governmental authorities. From time to time, the Company has been contacted by
government agencies with respect to required permits or compliance with existing
permits. While the Company has been notified of certain situations of
non-compliance, management does not expect the fines or the cost of compliance,
if any, to be significant.
Item 4. Submission of Matters to a Vote of Security Holders
None.
11
Executive Officers of Registrant
- ------------------------------------------------------------------------------------------------------------
NAME AGE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS
- ------------------------------------------------------------------------------------------------------------
Gary L. Castagna 42 Senior Vice President, Chief Financial Officer and Treasurer of the
Company since February 2001; prior thereto, a consultant to AMCOL
since June 2000; prior thereto, Vice President of the Company and
President of Chemdal International Corporation (this business is a
former subsidiary of AMCOL, and consisted of the absorbent polymers
business that was sold to BASF AG in June 2000) since August 1997; prior
thereto, Vice President of Finance for Chemdal International Corporation.
Since January 2000, Director of M-Wave Incorporated, a manufacturer and
distributor of printed circuit boards.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Peter L. Maul 54 Vice President of the Company since 1993 and President of Nanocor,
Inc. since 1995.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Ryan F. McKendrick 52 Vice President of the Company and President of Colloid Environmental
Technologies Company since November 1998; President of Volclay
International Corporation since 2002; prior thereto, Vice President
of Colloid Environmental Technologies Company since 1994.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Gary Morrison 48 Vice President of the Company and President of American Colloid
Company since February 2000; prior thereto, Executive Vice President
of American Colloid Company since 1998; prior thereto, Vice
President of American Colloid Company since 1994.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Clarence O. Redman 61 Secretary of the Company since 1982. Clarence O. Redman is of
counsel to the law firm of Lord, Bissell & Brook LLP, the law firm
that serves as Corporate Counsel to the Company, since October 1997.
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
Lawrence E. Washow 50 Chief Executive Officer since May 2000; President of the Company
since May 1998; Chief Operating Officer of the Company since 1997;
prior thereto, Senior Vice President of the Company since 1994 and
President of Chemdal International Corporation since 1992; a
Director since February, 1998.
- ------------------------------------------------------------------------------------------------------------
All executive officers of the Company are elected annually by the Board of
Directors for a term expiring at the annual meeting of directors following their
election or when their respective successors are elected and shall have
qualified.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the New York Stock Exchange under the
symbol "ACO." The following table sets forth, for the periods indicated, the
high and low closing sale prices of the common stock, as reported by the New
York Stock Exchange, and cash dividends declared per share.
- -----------------------------------------------------------------------------------------------------------------
Stock Price
----------------------- Cash Dividends
High Low Declared Per Share
- -----------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2003: 1st Quarter $ 6.19 $ 5.40 $ 0.030
----------------------------------------------------------------------
2nd Quarter $ 8.30 $ 5.68 0.040
----------------------------------------------------------------------
3rd Quarter $ 14.45 $ 7.83 0.040
----------------------------------------------------------------------
4th Quarter $ 23.30 $ 12.36 0.050
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2002: 1st Quarter $ 7.35 $ 6.04 $ 0.015
----------------------------------------------------------------------
2nd Quarter $ 6.60 $ 5.57 0.020
----------------------------------------------------------------------
3rd Quarter $ 6.65 $ 4.75 0.030
----------------------------------------------------------------------
4th Quarter $ 6.09 $ 4.81 0.030
- -----------------------------------------------------------------------------------------------------------------
The Company has paid cash dividends every year for 67 years.
As of February 26, 2004, there were 2,562 holders of record of the common
stock, excluding shares held in street name.
12
Item 6. Selected Financial Data
The following is selected financial data for the Company as of and for the
five years ended December 31, 2003.
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Operations Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 363,966 $ 298,873 $ 275,288 $ 284,142 $ 296,118
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 89,551 71,868 66,305 68,398 67,313
- ------------------------------------------------------------------------------------------------------------------------------------
General, selling and administrative expenses 60,614 52,210 47,740 48,071 56,925
- ------------------------------------------------------------------------------------------------------------------------------------
Business realignment and other charges -- -- -- 2,357 11,575
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 28,937 19,658 18,565 17,970 (1,187)
- ------------------------------------------------------------------------------------------------------------------------------------
Investment income -- -- 3,015 9,816 --
- ------------------------------------------------------------------------------------------------------------------------------------
Change in value of interest rate swap -- -- (401) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest expense (280) (512) (2,196) (3,160) (3,440)
- ------------------------------------------------------------------------------------------------------------------------------------
Net other income (expense) (4) 604 43 223 (23) (1,069)
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax income (loss) (4) 29,261 19,189 19,206 24,603 (5,696)
- ------------------------------------------------------------------------------------------------------------------------------------
Income taxes (benefit) (4) 9,946 6,916 6,155 6,981 (1,815)
- ------------------------------------------------------------------------------------------------------------------------------------
Income from joint ventures 600 531 28 470 448
- ------------------------------------------------------------------------------------------------------------------------------------
Minority interest in net loss of subsidiary -- 164 59 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (4) 19,915 12,968 13,138 18,092 (3,433)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations -- -- (879) (8,185) 25,667
- ------------------------------------------------------------------------------------------------------------------------------------
Gain on disposal of discontinued operations 8,950 -- 1,154 316,330 --
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- -- (182) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 28,865 12,968 13,231 326,237 22,234
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data
- ------------------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (1)
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations (4) 0.70 0.46 0.47 0.65 (0.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Discontinued operations 0.32 -- 0.01 11.20 0.96
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- -- (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 1.02 0.46 0.47 11.85 0.83
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations (4) 0.67 0.43 0.43 0.61 (0.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Discontinued operations 0.30 -- 0.01 10.29 0.94
- ------------------------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- -- (0.01) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 0.97 0.43 0.43 10.90 0.82
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity (3) 6.35 5.43 4.98 4.69 6.94
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends 0.16 0.10 0.06 0.16 0.27
- ------------------------------------------------------------------------------------------------------------------------------------
Partial liquidation distribution -- -- -- 14.00 --
- ------------------------------------------------------------------------------------------------------------------------------------
13
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding Data
- ------------------------------------------------------------------------------------------------------------------------------------
End of period 29,107,746 27,881,903 28,256,389 28,781,304 26,852,056
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-basic 28,357,009 28,133,795 28,193,234 27,523,157 26,772,569
- ------------------------------------------------------------------------------------------------------------------------------------
Incremental impact of stock options 1,492,569 2,014,725 2,412,826 2,433,533 426,694
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-diluted 29,849,578 30,148,520 30,606,060 29,956,690 27,199,263
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data (at end of period)
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets $ 138,296 $ 111,133 $ 101,177 $ 259,980 $ 138,614
- ------------------------------------------------------------------------------------------------------------------------------------
Cash equivalents included in current assets -- -- -- 168,549 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net current assets of discontinued
operations included in current assets -- -- 798 -- 47,668
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 86,996 81,847 72,348 74,665 78,911
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term assets 33,485 28,848 22,805 31,122 102,164
- ------------------------------------------------------------------------------------------------------------------------------------
Net long-term assets of discontinued
operations included in long-term assets -- -- 311 6,932 87,554
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 258,777 221,828 196,330 365,767 319,689
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities 51,351 52,639 31,083 169,584 33,557
- ------------------------------------------------------------------------------------------------------------------------------------
Net current liabilities of discontinued
operations included in current liabilities -- -- -- 1,484 --
- ------------------------------------------------------------------------------------------------------------------------------------
Accrued income taxes related to sale of
discontinued operations included in
current liabilities -- -- -- 135,095 --
- ------------------------------------------------------------------------------------------------------------------------------------
Long-term debt 9,006 5,573 13,245 51,334 91,067
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 13,522 12,233 11,275 9,942 7,692
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 184,898 151,383 140,727 134,907 186,448
- ------------------------------------------------------------------------------------------------------------------------------------
Other Statistics for Continuing Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization $ 18,160 $ 20,009 $ 17,427 $ 17,000 $ 19,093
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 15,795 16,223 14,730 14,975 15,796
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit margin 24.6% 24.0% 24.1% 24.1% 22.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) margin 8.0% 6.6% 6.7% 6.3% (0.4%)
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax profit (loss) margin 8.0% 6.4% 7.0% 8.9% (1.9%)
- ------------------------------------------------------------------------------------------------------------------------------------
Effective tax (benefit) rate 34.0% 36.0% 32.0% 28.4% (31.9%)
- ------------------------------------------------------------------------------------------------------------------------------------
Net profit (loss) from continuing operations margin 5.5% 4.3% 4.8% 6.5% (1.2%)
- ------------------------------------------------------------------------------------------------------------------------------------
Return on average equity 11.9% 8.6% 9.3% 13.7% (1.8%)
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Based on the weighted average common shares outstanding for the year.
(2) Based on the weighted average common shares outstanding, including common
stock equivalents, for the year.
(3) Based on the number of common shares outstanding at the end of the year.
(4) Reflects reclassification of loss on early extinguishment of debt and
related tax effect to net other income (expense) and income taxes in 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We are a global, specialty minerals company and earn our revenues and
profits from the sale of products and services that serve over 12 product
markets. Our minerals segment operates 26 manufacturing facilities in six
countries and has three business units: metalcasting, pet products and specialty
minerals. Our environmental segment operates seven manufacturing facilities in
six countries and has three business units: lining technologies, building
materials and water treatment. Additionally, we have a transportation segment
that performs trucking services for the minerals and environmental segments as
well as unrelated parties and a developing nanocomposite business that is
reported within our corporate segment.
The principal mineral that we utilize to generate revenues is bentonite.
We own or lease bentonite reserves in the United States and China. Additionally,
through our joint ventures and minority interests, we have access to bentonite
reserves in Egypt, India and Mexico. Bentonite deposits have varying physical
properties which require us to characterize which
14
markets our reserves can serve. We believe that our understanding of bentonite
properties, mining methods, processing and application to markets are the core
components of the longevity of our Company and our future prospects.
Our customer base is diverse in regard to their end-markets and geography.
They range from foundries that produce castings for automotive and
transportation products--heavy-duty trucks and railroad cars--to producers of
consumer goods--cat box filler, cosmetics and detergents. A majority of our
products have been used in the same applications for decades and have
experienced minimal technological obsolescence. A majority of our business is
performed under short-term agreements; therefore, terms of sale, such as pricing
and volume, can change within our fiscal year.
Approximately two-thirds of our revenue is generated in North America,
consequently, the state of the U.S. economy impacts our revenues. Our fastest
growing markets are in Central Europe and Asia, which have continued to outpace
the U.S. in economic growth. The weakening of the U.S. dollar has been a benefit
to our revenues and profits over the past year, however our operating results
may be affected in the future by the change in the euro and British pound
compared to the U.S. dollar.
Sustainable, long-term profit growth is our primary objective. We are
undertaking a number of strategic initiatives to achieve this goal:
o Organic growth: The central component of our growth strategy is
expansion of our product lines and market presence. We have had a
history of commitment to research and development and using this
resource to bring innovative products to market. We believe this
approach to growth offers the best probability of achieving our
long-term goals at the lowest risk.
o Globalization: We have expanded our manufacturing and marketing
organizations into Europe and Asia-Pacific over the last 40 years.
This operating experience enables us to expand further into emerging
markets. We see China and India as significant opportunities for
expanding our revenues and earnings over the long-term as a number
of markets we serve, such as metalcasting and lining technologies,
are expected to grow.
o Mineral development: Bentonite is a component in over 90% of the
products we produce. Since it is a natural material, we must
continually expand our reserve base to maintain a long-term
business. Our goal is to add new reserves to replace the bentonite
mined each year. Furthermore, we need to assure new reserves meet
the physical property requirements for our diverse product lines and
are economical to mine. Our organization that is committed to
developing its global reserve base to meet these requirements.
o Acquisitions: We continually seek opportunities to add complementary
businesses to our portfolio of products. Over the last two years, we
have acquired five businesses for a total cost of approximately $24
million. A strong financial position will enable us to continue to
acquire businesses which, in our assessment, are valued fairly and
fit with our growth strategy.
There can be no assurance that we will achieve success in implementing any
one or more of the strategic initiatives described above.
A number of risks will challenge us in meeting our long-term objectives.
We describe certain risks, such as competition and our reliance on economically
sensitive markets, under "Item 7A. Quantitative and Qualitative Disclosures
About Market Risk". In general, the significance of these risks has not changed
over the past year. One particular situation, however, does present a challenge
to manage in the near term. Bulk cargo shipping costs are rising significantly
due to acute demand from China. We rely on shipping bulk cargos of bentonite
from the U.S. and China to customers, as wells as our own subsidiaries. This
issue is not isolated to AMCOL; however, we may need to offset additional
shipping costs with price increases to customers in order to maintain our
profitability. There can be no assurance that we will be successful in achieving
these price increases. We are also reviewing our shipping patterns to determine
more cost-effective means of transporting bulk cargos.
15
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and Results of
Operations describes relevant aspects of our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires management to select accounting policies that are
appropriate for our business, and to make certain estimates, judgments and
assumptions about matters that are inherently uncertain in applying those
policies. On an ongoing basis, we re-evaluate these estimates, judgments and
assumptions for reasonableness because of the critical impact that these factors
have on the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. Actual results may differ from these estimates.
Our management has identified the most critical accounting policies upon
which the financial statements are based and that involve the most complex and
subjective decisions and assessments. These policies relate to the valuation of
accounts receivable and inventories, the recognition of depreciation and
impairment in the carrying value of property, plant and equipment, and
accounting for pension benefits. Our senior management has discussed the
development, selection and disclosure of these policies with the members of the
Audit Committee of our Board of Directors. These accounting policies are
disclosed in the notes to the consolidated financial statements. The discussion
which follows should be read in conjunction with the consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K.
Valuation of Accounts Receivable
We provide credit to customers in the ordinary course of business and
perform ongoing credit evaluations. Our customer base is diverse and includes
customers located throughout the world. Payment terms in certain of the foreign
countries in which we do business are longer than those that are customary in
the United States, and as a result, may give rise to additional credit risk
related to outstanding accounts receivable from these non-U.S. customers.
Likewise, a change in the financial position, liquidity or prospects of any of
our customers could have an impact on our ability to collect amounts due. While
concentrations of credit risk related to trade receivables are somewhat limited
by our large customer base, we do extend significant credit to some of our
customers.
We make estimates of the amounts of our gross accounts receivable that
will not be collectible, and record an allowance for doubtful accounts to reduce
the carrying value of accounts receivable to the amount that is expected to be
realized. The allowance for doubtful accounts is established based upon the
Company's historical bad debt experience, a review of the overall aging of the
accounts, and an analysis of specific customer accounts, particularly those with
past-due balances. The recorded allowance for doubtful accounts is intended to
cover specific customer collection issues identified by management at the
balance sheet date, and to provide for potential losses from other accounts
based on our historical experience. Increases in the allowance for doubtful
accounts are recorded as an expense and included in general, selling and
administrative expenses in the period identified. Our estimate of the required
allowance for doubtful accounts is a critical accounting estimate because it is
susceptible to change from period to period. In addition, it requires management
to make judgments about the future collectibility of customer accounts.
Inventory Valuation
Inventories are recorded at the lower of actual manufactured or purchased
cost, or estimated net realizable value. In order to determine net realizable
value, management regularly reviews inventory quantities on hand and evaluates
significant items to determine whether they are excess or obsolete. We record
the value of estimated excess or obsolete inventory as a reduction of inventory
and as an expense which is included in cost of sales in the period it is
identified. Our estimate of excess and obsolete inventory is a critical
accounting estimate because it is susceptible to change from period to period.
In addition, it requires management to make judgments about the future demand
for inventory.
In order to quantify excess or obsolete inventory, management prepares
lists of inventory quantities on hand and determines the amount of such
inventories that, based on projected demand, are not anticipated to be sold
within the next 12 to 24 months or, based on our current product offerings, are
excess or obsolete. This list is then reviewed with sales and
16
production management personnel to determine whether this list of potential
excess or obsolete inventory is complete. Factors which impact this evaluation
include, for example, whether there has been a change in the market or packaging
for particular products, and whether there are components of inventory that
incorporate obsolete formulations or technology. In certain businesses in which
we are engaged, such as the domestic cat litter business, product and packaging
changes can occur rapidly and expose us to excess and obsolete inventories.
Goodwill and Long-lived Assets
We have made substantial investments in property, plant and equipment and
have a moderate investment in goodwill. For property, plant and equipment, we
evaluate the recoverability of these assets whenever events or changes in
circumstances indicate that the carrying value of the assets may not be
recoverable. For goodwill, we perform an annual impairment assessment (or more
frequently if impairment indicators arise) as required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets.
In analyzing the fair value of goodwill and assessing the recoverability
of the carrying value of property, plant and equipment, management uses models
which are based on estimates of future operating performance and related cash
flows. In preparing these models, management must make estimates in projecting
future cash flows attributable to the reporting unit or assets being tested, in
selecting a discount rate that reflects the related business risks, and in
determining the appropriate perpetuity or disposal value. In developing these
projections of future cash flows, we make a variety of important assumptions and
estimates that have a significant impact on management's assessments of whether
the carrying values of goodwill and property, plant and equipment should be
adjusted to reflect impairment. Among these are assumptions and estimates about
the future growth and profitability of the related business unit or asset, and
assumptions about anticipated future economic, regulatory and political
conditions in the relevant market.
Our estimates related to the carrying values of goodwill and property,
plant and equipment are considered to be critical accounting estimates because
they are susceptible to change from period to period based on our judgments
about a variety of factors. For example, judgment is required to determine
whether events or changes in circumstances indicate that the carrying value of
the assets may not be recoverable. In addition, in performing assessments of the
carrying values of these assets, we must make judgments about the future
business, economic, regulatory, and political conditions affecting these assets,
as well as to select the appropriate risk-related rates for discounting
estimated future cash flows, and to develop reasonable estimates of disposal
values.
Retirement Benefits
We sponsor a defined-benefit pension plan for substantially all of our
domestic employees hired on or before December 31, 2003. In order to measure the
expense and obligations associated with these retirement benefits, management
must make a variety of estimates including discount rates used to value certain
liabilities, expected return on plan assets set aside to fund these liabilities,
rate of compensation increase, employee turnover rates, retirement rates,
mortality rates and other factors. Our benefit plan committee determines the key
assumptions related to the discount rate, expected investment rate of return and
compensation increases after consulting with the actuarial firm that performs
the calculations. Other assumptions are also set based on consultation with our
actuaries.
We base our estimates on our historical experience as well as current
facts and circumstances. The discount rate reflects the market rate for
high-quality fixed income debt instruments on the measurement date. The rate is
used to discount the future cash flows of benefit obligations back to the
measurement date. An increase in the discount rate reduces pension expense and
liabilities. The expected long-term rate of return on plan assets is determined
using historic market return trends together with, current market conditions and
actual plan experience. An increase in the expected long-term rate of return on
plan assets reduces pension expense and liabilities. The expected rate of
compensation increase is determined based on our near-term outlook and assumed
inflation. Higher compensation rates increase the pension expense and
liabilities. Retirement rates are based primarily on actual plan experience.
Mortality rates are based on tables published by the insurance industry.
Different estimates used by management could result in our recognizing different
amounts of expense over different periods of time. Note 11 to Notes to
Consolidated Financial Statements describes details of our pension obligations
and the expense for the year ended December 31, 2003.
17
Income Taxes
Our reported effective tax rate applicable to continuing operations was
34% for 2003, compared with 36% for 2002. The decline reflected the higher
proportion of taxable income reported from lower tax jurisdictions. Most of our
international operations are located in jurisdictions with lower statutory
income tax rates than the United States.
Our effective tax rate is based on the expected income, statutory tax
rates and tax planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is required in
determining our effective tax rate and in evaluating our tax positions. We
establish reserves when, despite our belief that our tax return positions are
fully supportable, we believe those positions are likely to be challenged and
that we may not succeed. We adjust these reserves in light of changing facts and
circumstances, such as the progress of a tax audit. Our effective tax rate
includes the impact of reserve positions and changes to reserves that we
consider appropriate. The rate is then applied to pre-tax income reported in our
consolidated statements of operations. Our estimates of income tax items,
expense and reserves are considered to be critical accounting estimates because
they are susceptible to change from period to period based on our judgments
about a variety of factors.
A number of years may elapse before a particular matter, for which we have
established a reserve, is audited and finally resolved. Audits of our United
States federal income tax returns have been completed through 2001. State income
tax returns are audited more infrequently. We also have unresolved audits of
certain subsidiary income tax filings in the United Kingdom for 1999 through
2002. Unfavorable settlement of any particular issue would require use of our
cash and could result in the recoding of additional tax expense. Favorable
resolution would be recognized as a reduction to our tax provision in the year
of resolution.
We have not recognized any United States tax expense on undistributed
international earnings since we intend to reinvest the earnings outside the
United States for the foreseeable future. These undistributed earnings are
approximately $16.8 million at December 31, 2003.
Results of Operations for the Three Years Ended December 31, 2003
The discussion below references the consolidated statement of operations
on page F-4 in Part IV of this document.
Net sales for the year ended December 31, 2003 were $364.0 million
compared with $298.9 million for 2002 and $275.3 million for 2001. In 2003, the
minerals segment accounted for 57% of net sales while the environmental and
transportation segments represented 33% and 10%, respectively. Minerals
contributed approximately 68% of the increase in net sales over 2002. The
environmental and transportation segments contributed 28% and 4%, respectively,
to the increase in net sales. The largest component of the increase in net sales
in 2003 and 2002 was recorded by Colin Stewart Minchem (CSM), which was acquired
as of May 1, 2002, and is included in the minerals segment. Other elements of
the increase in net sales are described in the operating segment discussions
below.
Gross profit was $89.6 million for the year ended December 31, 2003
compared with $71.9 million for 2002 and $66.3 million in 2001. The 25% increase
in gross profit in 2003 over 2002 resulted from the increase in net sales and
lower production costs in the mineral segment businesses. CSM accounted for
approximately 70% of the increase. Gross margin improved to 24.6% compared to
24.0% in 2002 and 24.1% in 2001. The 60 basis point improvement in gross margin
in 2003 followed the increase in net sales and lower production costs.
General, selling and administrative expenses were $60.6 million for the
year ended December 31, 2003 compared with $52.2 million in 2002 and $47.7
million in 2001. Higher compensation and employee benefit costs were the primary
causes for the increase in 2003 over 2002. CSM was accounted for the largest
component of the increase in general, selling and administrative expenses in
2002 compared with 2001.
Operating profit was $28.9 million for the year ended December 31, 2003,
compared with $19.7 million in 2002 and $18.6 million in 2001. Operating profit
margin for 2003 was 8.0% compared with 6.6% in 2002 and 6.7% in 2001. The
18
improvement in operating profit, and the operating profit margin, was attributed
to the increase in net sales and lower production costs in the minerals segment
businesses.
A review of sales, gross profit, general, selling and administrative
expenses and operating profit by segment follows.
Minerals Segment
- ------------------------------------------------------------------------------------------------------------------------------------
Minerals Year Ended December 31,
-----------------------------------------------------------------------------------------------------
2003 2002 2001 2003 vs. 2002 2002 vs. 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Product sales $197,282 91.3% $156,174 91.0% $133,903 89.3%
Shipping revenue 18,764 8.7% 15,369 9.0% 16,042 10.7%
-------- ----- -------- ----- -------- -----
Net sales 216,046 100.0% 171,543 100.0% 149,945 100.0% $44,503 25.9% $21,598 14.4%
-------- ----- -------- ----- -------- -----
Cost of sales - product 155,284 71.9% 124,267 72.4% 106,314 70.9%
Cost of sales - shipping 18,764 8.7% 15,369 9.0% 16,042 10.7%
-------- ----- -------- ----- -------- -----
Cost of sales 174,048 80.6% 139,636 81.4% 122,356 81.6%
-------- ----- -------- ----- -------- -----
Gross profit 41,998 19.4% 31,907 18.6% 27,589 18.4% 10,091 31.6% 4,318 15.7%
General, selling and
administrative expenses 18,575 8.6% 16,037 9.3% 12,892 8.6% 2,538 15.8% 3,145 24.4%
-------- ----- -------- ----- -------- -----
Operating profit $ 23,423 10.8% $ 15,870 9.3% $ 14,697 9.8% $ 7,553 47.6% $ 1,173 8.0%
- ------------------------------------------------------------------------------------------------------------------------------------
2003 vs. 2002
Approximately 24% of the $44.5 million increase in minerals net sales over
2002 was attributed to the January through April period in 2003, which is the
period in 2002 that CSM was not owned. Net sales improved over 2002 in all three
business units, metalcasting, pet products and specialty minerals. Metalcasting
volumes improved in North America primarily from increased demand from certain
foundry customers. Pricing also improved in certain product lines to offset
higher raw material and shipping costs. Our Asian metalcasting businesses also
increased volumes over 2002, particularly in China. Pet products sales increased
due to higher volume and improved pricing, which was aided by lower customer
discounts. Specialty minerals sales primarily improved due to higher volume to
detergent customers. Oil and gas drilling volume also improved over 2002.
Gross profit increased over 2002 primarily as a result of the improvement
in net sales described above. In addition, productivity improvements in the pet
products business decreased unit manufacturing costs. Higher volume and
productivity improvements expanded gross margin by 80 basis points to 19.4% in
2003.
The inclusion of a full year of costs related to CSM, together with higher
compensation and employee benefit costs accounted for a majority of the increase
in general, selling and administrative expenses.
2002 vs. 2001
CSM contributed sales in 2002 of $20.5 million following the acquisition,
which was effective from May 1, 2002. Increased sales from the international
subsidiaries accounted for the remainder of the increase. Within the domestic
minerals business, sales to the metalcasting market increased, but that was
offset by declines in the pet products and export units. Overall, sales from the
domestic minerals business were flat in 2002 compared to 2001.
Approximately $4.0 million of the improvement in gross profit in 2002 was
attributed to CSM. Gross profit from the domestic minerals business was flat in
2002 compared to 2001.
CSM accounted for approximately $2.0 million of the increase in general,
selling and administrative expenses in 2002. Higher personnel and benefit
expenses in the domestic minerals business accounted for the remaining increase.
19
Environmental Segment
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental Year Ended December 31,
----------------------------------------------------------------------------------------------------
2003 2002 2001 2003 vs. 2002 2002 vs. 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Product sales $114,853 92.3% $ 98,208 92.7% $ 96,046 92.6%
Shipping revenue 9,556 7.7% 7,718 7.3% 7,720 7.4%
-------- ----- ------- ----- -------- -----
Net sales 124,409 100.0% 105,926 100.0% 103,766 100.0% $18,483 17.4% $2,160 2.1%
-------- ----- ------- ----- -------- -----
Cost of sales - product 71,341 57.3% 61,615 58.2% 60,850 58.6%
Cost of sales - shipping 9,556 7.7% 7,718 7.3% 7,720 7.4%
-------- ----- ------- ----- -------- -----
Cost of sales 80,897 65.0% 69,333 65.5% 68,570 66.1%
Gross profit 43,512 35.0% 36,593 34.5% 35,196 33.9% 6,919 18.9% 1,397 4.0%
General, selling and
administrative expenses 25,657 20.6% 22,220 21.0% 20,042 19.3% 3,437 15.5% 2,178 10.9%
-------- ----- ------- ----- -------- -----
Operating profit $ 17,855 14.5% $ 14,373 13.6% $ 15,154 14.6% $ 3,482 24.2% (781) -5.2%
- ------------------------------------------------------------------------------------------------------------------------------------
2003 vs. 2002
Lining technologies shipments in the U.S. and Europe primarily accounted
for the increase in net sales. Building materials shipments in Europe also
improved over 2002. Water treatment revenues declined from 2002 primarily due to
the lower sales in the offshore services group.
The increase in gross profit over 2002 corresponds with the increase in
sales. Unit production costs in 2003 were comparable to the prior year levels.
Higher compensation and benefit costs accounted for the increase in
general, selling and administrative expenses over the prior year period.
2002 vs. 2001
International sales accounted for all of the increase in sales in 2002
over 2001. The segment's European offshore drilling service and building
materials businesses contributed to the increase in international sales. Exports
from the domestic business increased in 2002 over 2001, but that was offset by a
decrease in the domestic offshore business.
Improved production costs in the segment's domestic lining technology
business contributed all of the increase in gross profit in 2002 from 2001.
Gross profits from the international business declined even with the increase in
sales. Higher production costs at the segment's European operations caused the
decline. Improved production costs at the domestic lining technology operations
increased gross profit to offset the decline in the European operations.
General, selling and administrative expenses increased due to higher
compensation and benefit expenses, information technology costs, marketing and
promotion costs, and research and development spending.
20
Transportation Segment
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation Year Ended December 31,
------------------------------------------------------------------------------------------------------
2003 2002 2001 2003 vs. 2002 2002 vs. 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 37,549 100.0% $ 32,509 100.0% $ 33,133 100.0% $ 5,040 15.5% $ (624) (1.9%)
Cost of sales 33,508 89.2% 29,141 89.6% 29,613 89.4%
-------- ----- -------- ----- -------- -----
Gross profit 4,041 10.8% 3,368 10.4% 3,520 10.6% 673 20.0% (152) (4.3%)
General, selling and
administrative expenses 2,494 6.6% 2,401 7.4% 2,157 6.5% 93 3.9% 244 11.3%
-------- ----- -------- ----- -------- -----
Operating profit $ 1,547 4.1% $ 967 3.0% $ 1,363 4.1% $ 580 60.0% $ (396) (29.1%)
- ------------------------------------------------------------------------------------------------------------------------------------
2003 vs. 2002
Approximately 37% of the segment's sales in 2003 were to the domestic
minerals and environmental segments. Intersegment sales contributed
approximately 58% of the sales increase over 2002. Higher traffic levels and new
customer sales accounted for the remainder of the increase. Gross margin
increased 40 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.
2002 vs. 2001
Net sales declined in 2002 compared to 2001 due to lower third-party
customer and intersegment shipments. The minerals and environmental segments
represented approximately 34% of sales in 2002. Fuel costs remained flat with
2001 levels. Increased general, selling and administrative expenses were
associated with higher information technology and compensation costs.
Corporate Segment
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Year Ended December 31,
---------------------------------------------------------------------------------------
2003 2002 2001 2003 vs. 2002 2002 vs. 2001
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Intersegment shipping sales $(14,038) $(11,105) $(11,556)
Intersegment shipping costs (14,038) (11,105) (11,556)
-------- -------- --------
Gross profit -- -- --
Corporate general, selling
and administrative expenses 10,090 7,108 8,020 $ 2,982 42.0% $ (912) (11.4%)
Nanocomposite business
development expenses 3,798 4,444 4,629 (646) (14.5%) (185) (4.0%)
-------- -------- -------- ------- -------
Operating loss $(13,888) $(11,552) $(12,649) $(2,336) (20.2%) $ 1,097 8.7%
- ------------------------------------------------------------------------------------------------------------------------------------
2003 vs. 2002
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.
Corporate costs include management information systems, human resources,
investor relations, corporate communications and finance. Additionally,
marketing, research and operating costs related to the development of the
nanocomposite business are included in this segment.
The increase in corporate general, selling and administrative expenses in
2003 related to higher compensation and
21
employee benefit costs. Included in compensation costs in the current period
were costs associated with stock-options granted to employees in the current
year. As disclosed in Note 1 to the Consolidated Financial Statements included
in Item IV of this document, effective from January 1, 2003, we adopted the fair
value recognition provisions of Financial Accounting Standards Board (FASB)
Statement No. 123, Accounting for Stock-Based Compensation. We elected to record
stock-based compensation costs using fair value under the prospective method.
Lower nanocomposite development expenses in 2003 were due to a decline in
research and development costs and increased revenue over 2002.
2002 vs. 2001
Intersegment shipping revenues and costs in 2002 were related to services
provided by the transportation segment for certain domestic minerals and
environmental segment businesses. The services were provided at arms-length
rates and billed by the transportation segment to the minerals and environmental
segments, which in turn billed their customers. The intersegment shipping sales
and costs in the table above reflect the elimination of these intersegment
transactions.
Approximately 60% of the lower corporate administrative expenses in 2002
were associated with increased allocation of certain costs to the mineral,
environmental and transportation segments. The remaining decrease was attributed
to lower personnel and legal costs. The decline in nanocomposite expenses in
2002 was associated with a restructuring of the business that was implemented in
the second quarter of 2001.
Investment Income
Investment income in 2001 of $3.0 million, or $0.06 per diluted share, was
associated with earnings on the temporary investment of proceeds received on the
sale of the absorbent polymers segment. The invested funds were liquidated in
the third quarter of 2001 and used to pay down long-term debt by $40 million.
Net Interest Expense
Net interest expense was $0.3 million, $0.5 million and $2.2 million in
2003, 2002, and 2001, respectively. As discussed above, we reduced debt in the
third quarter of 2001 by liquidating funds previously invested in cash
equivalent securities. Consequently, the decreases in 2003 and 2002 as compared
to 2001 were primarily due to lower average debt levels.
Other Income (Expense)
Other income in 2003 was approximately $0.6 million. In 2002 and 2001,
other income was less than $0.1 million and approximately $0.2 million,
respectively. This item reflects a number of miscellaneous transactions
including gains and losses related to foreign exchange transactions and
disposals of fixed assets. The increase in 2003 was primarily attributed to
recognized foreign exchange gains at our U.K. and Poland businesses.
Income Taxes
The effective income tax rate for 2003 was 34.0% compared to 36.0% in 2002
and 32.0% in 2001. The principal driver of changes in our effective tax rate is
the mix of earnings. The decrease in the 2003 rate was due to increased taxable
income in foreign jurisdictions which have lower statutory rates than the U.S.
The increased tax rate in 2002 was attributed to a greater portion of earnings
generated in foreign jurisdictions with higher corporate income tax rates.
Discontinued Operations
Discontinued operations reflect the operating results of the U.K.
metalcasting and cat litter businesses, which were sold or closed in 2001.
Income from discontinued operations was $8.9 million in 2003, or $0.30 per
diluted share, and $0.3 million in 2001, or $0.01 per diluted share.
22
No proceeds were received in connection with the sale of the U.K.
metalcasting business. The acquirer leased certain land and buildings and pays
us a royalty related to a license for use of certain trademarks. The license
agreement has a 10-year term and the royalty is based on sales by the acquiring
entity. In connection with the sale of the U.K. metalcasting business, we
realized a loss on the disposal of assets of $4.8 million and recognized a tax
benefit of $6.0 million in 2001. The tax benefit recorded in 2001 was associated
with the write-off of our investment in our U.K. minerals subsidiary.
On February 18, 2004, the Internal Revenue Service notified us that audits
of certain federal income tax returns, including 2001, had been completed and
approved by the Committee on Joint Taxation. The 2001 return included deductions
for certain loss associated with the disposal of the U.K. metalcasting and cat
litter businesses. Upon receiving this notification, effective as of December
31, 2003, we revised our estimate of income taxes payable previously recorded to
recognize an income tax receivable of $8.9 million, including interest on the
forthcoming refund.
Other Items
A charge of $0.01 per diluted share was recorded in 2001 related to the
cumulative effect of a change in accounting principle. The charge relates to the
adoption of Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
Net Income
Net income for 2003 was $28.9 million compared with $13.0 million and
$13.2 million in 2002 and 2001, respectively. Income from continuing operations
in 2003 was $19.9 million compared with $13.0 million and $13.1 million in 2002
and 2001, respectively. The differences between net income and income from
continuing operations in 2003 and 2001 was attributed to income from
discontinued operations, the major components of which were described
previously. The improvement in income from continuing operations in 2003 over
2002 was attributed to the increase in operating profit for the reasons
described earlier in this report.
Earnings Per Share
Diluted earnings per share were calculated using the weighted average
number of shares of common stock, including common share equivalents,
outstanding during the year. Stock options issued to key employees and directors
are considered common share equivalents. The weighted average number of shares
of common stock and common stock equivalent shares outstanding was approximately
29.8 million in 2003, 30.1 million in 2002 and 30.6 million in 2001.
There were 29.1 million shares outstanding, excluding common share
equivalents, at December 31, 2003, compared to 27.9 million at December 31,
2002, and 28.3 million at December 31, 2001. The 1.2 million share increase in
2003 was related to the issuance of 1.5 million shares of treasury stock to
employees in connection with the exercise of stock options. This was offset by
the repurchase of 267,000 shares of common stock on the open market.
Diluted earnings per share from continuing operations are analyzed below:
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------
2003 2003 2001
- --------------------------------------------------------------------------------
Investment income $ -- $ -- $ 0.06
Income from continuing operations
excluding the above 0.67 0.43 0.37
-------- -------- --------
Diluted earnings from
continuing operations $ 0.67 $ 0.43 $ 0.43
- --------------------------------------------------------------------------------
Diluted earnings from continuing operations in 2003 were $0.67 per share
compared with $0.43 per share in 2002 and $0.43 per share in 2001. The
improvement in 2003 over 2002 is commensurate with the increase in net income
from continuing operations previously described. Net income was $0.97 per
diluted share in 2003 compared with $0.43 per diluted share in 2002 and 2001.
Discontinued operations accounted for $0.30 per diluted share in 2003 and $0.01
per diluted share in 2001. Cumulative effect of a change in accounting principle
accounted of a loss of $0.01 per diluted share in 2001.
23
Liquidity and Capital Resources
Cash flows from operations, borrowings from a revolving credit facility
and proceeds from the exercise of stock options by employees have been the
sources of funds to purchase property; plants and equipment; acquire businesses;
repurchase common stock; and pay dividends to shareholders. We believe cash
flows from operations and borrowings from an unused and committed revolving
credit facility will be adequate to support our operating plans for the
foreseeable future. Following is a discussion and analysis of our cash flow
activities as presented on page F-7 of Part IV of this report.
During 2003, cash provided by operating activities was $27.9 million
compared with $37.6 million in 2002 and $24.4 million in 2001. The decline in
2003 was primarily attributed to cash used for working capital of $8.9 million
in 2003, compared with $3.7 million of cash generated from working capital
changes in 2002. Accounts receivable and inventories increased by $12.6 million
and $6.7 million, respectively, over 2002, while accounts payable and accrued
liabilities increased $2.5 million and $7.9 million, respectively. We consider
the increase in these working capital components to be reasonable considering
the growth in sales we experienced in 2003. Days' sales outstanding, a measure
used to assess the collection period of accounts receivable balances, were 59.8
days as of December 31, 2003, and 56.5 days as of December 31, 2002. We use
sales for the fourth quarter of each respective year to compute this measure.
The increase in days' sales outstanding is due to higher accounts receivable
amounts at our European and Asian business units, which tend to have longer
customer payment terms. Inventory turns were 6.0 for both 2003 and 2002. This is
computed by annualizing cost of goods sold for the fourth quarter of each
respective year and dividing that result by the ending inventory balance.
Net cash used in investing activities in 2003 was $22.0 million compared
with $31.5 million in 2002 and $145.1 million in 2001. The decline in 2003 from
2002 was due to less cash used for acquisitions ($7.1 million in 2003 versus
$17.0 million in 2002). In 2002, we completed the acquisition of the stock of
Colin Stewart Minchem Ltd. for $15.5 million. In 2003, our acquisitions included
several small businesses. In 2001, we remitted $130.4 million in state and
federal income tax payments related to the sale of the absorbent polymers
segment, which was the reason for the decline in cash used in investing
activities in 2002 from 2001.
Acquisition of land, mineral reserves and depreciable assets was $15.8
million in 2003 compared with $16.2 million in 2002 and $14.7 million in 2001.
Capital spending in the minerals segment was $6.5 million, $8.3 million and $8.4
million in 2003, 2002 and 2001, respectively. The higher expenditures in 2002
and 2001 related to production capacity expansion projects completed in the U.S.
and Asia. Capital spending in the environmental segment was $7.7 million in 2003
compared with $6.2 million in 2002 and $5.7 million in 2001. Capacity expansion
projects in the U.S., Europe and Asia accounted for the increase in 2003. The
remaining capital expenditures in 2003, 2002 and 2001 were for corporate
infrastructure improvements and miscellaneous projects for the transportation
segment.
We foresee capital expenditures in 2004 to be comparable to 2003. While we
continue to seek businesses to acquire that meet our strategic objectives, we
cannot forecast any significant funding requirements for such activities in
2004.
Cash used in financing activities was $11.6 million in 2003 compared with
$3.0 million in 2002 and $46.4 million in 2001. The increase in 2003 was
primarily attributed to net repayments of debt which totaled $8.3 million, while
in 2002 we had net borrowings of $4.9 million. Acquisitions completed in 2002
were the primary reason for the net borrowings. Net debt repayments totaled
$39.1 million in 2001. We liquidated temporary investments in the third quarter
of 2001 and used the funds to repay debt.
We repurchased $1.6 million of our common stock in 2003 compared to $6.9
million in 2002 and $7.8 million in 2001. Approximately $3.7 million remains in
a stock repurchase authorization approved by our Board of Directors in May 2002.
The valuation of our common stock in 2002 and 2001 as reflected by our trading
price was at such a level that we felt it presented a good value to our
shareholders to use cash for stock repurchases.
24
Dividends on our common stock were $4.6 million in 2003 compared with $2.7
million in 2002. Declared dividends rose from $0.095 per share in 2002 to $0.16
per share in 2003. The increase reflected the improvement in our earnings and
cash flows in 2003.
As of December 31, 2003, we had outstanding debt of $9.8 million and cash
of $13.5 million, compared with $18.2 million of outstanding debt and $15.6
million of cash at December 31, 2002. Long-term debt (including current
maturities) represented 4.9% of total capitalization at December 31, 2003,
compared with 10.5% at December 31, 2002.
We had a current ratio of 2.69-to-1 as of December 31, 2003, and working
capital of approximately $86.9 million, compared with 2.11-to-1 and $58.5
million, respectively, as of December 31, 2002. The current ratio and working
capital increased due to the growth in sales we experienced in 2003 and the
$11.8 million decrease in the portion of long-term debt classified as a current
liability.
The following schedule sets forth details of our contractual obligations
at December 31, 2003:
- --------------------------------------------------------------------------------------------------------------
Payments due by period
------------------------------------------------------------------
Less
Total than 1 1-3 4-5 After 5
Year Years Years Years
- --------------------------------------------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------------------------------------------
Contractual obligations $ 9.8 $ 0.8 $ 4.0 $ -- $ 5.0
Operating leases 10.5 3.0 4.6 2.7 0.2
--------- -------- -------- -------- --------
Total contractual cash obligations $ 20.4 $ 3.8 $ 8.6 $ 2.7 $ 5.2
========= ======== ======== ======== ========
- --------------------------------------------------------------------------------------------------------------
Bank debt includes $4.0 million due under a revolving credit agreement,
which provides for a commitment of $100 million in borrowing capacity and
matures on October 31, 2006. Borrowing rates on the facility can range from
0.65% to 1.20% above the 3-month London Inter Bank Offered Rate (LIBOR)
depending upon the amount of the credit line used and certain capitalization
ratios. The facility requires certain covenants to be met including specific
amounts of net worth, and also limits our ability to make additional borrowings
and guarantees. We were in compliance with these covenants at December 31, 2003.
Operating leases relate to non-cancelable obligations for railroad cars,
truck trailers, computer software, office equipment, certain automobiles, and
office and plant facilities. Details of the operating leases are disclosed in
Note 10 of Notes to Consolidated Financial Statements in Item 8.
Since the mid-1980s, we and/or our subsidiaries have been named as one of
a number of defendants in product liability lawsuits relating to the minor
free-silica content our bentonite products used in the metalcasting industry.
The plaintiffs in these lawsuits are primarily employees of our foundry
customers. To date, we have not incurred significant costs in defending these
matters. We believe we have adequate insurance coverage and do not believe the
litigation will have a material adverse impact on our financial condition,
liquidity or results of the operations.
Forward Looking Statements and Risk Factors
Certain statements we make from time to time, including statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operation section above, constitute "forward-looking statements" made in
reliance upon the safe harbor contained in Section 21E of the Securities
Exchange Act of 1934, as amended. Such forward-looking statements include
statements relating to our Company or our operations that are preceded by terms
such as "expects," "believes," "anticipates," "intends" and similar expressions,
and statements relating to anticipated growth, levels of capital expenditures,
future dividends, expansion into global markets and the development of new
products. Such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties. Our actual results, performance
or achievements could differ materially from the results, performance or
achievements expressed in, or implied by, these forward-looking statements as a
result of various factors, including without limitation the following:
25
Competition
The minerals market is very competitive. We believe competition is
essentially a matter of product quality, price, delivery, service and technical
support. Several of our competitors in the U.S. market are larger and have
substantially greater financial resources. If we fail to compete successfully
based on these or other factors, we may lose customers or fail to recruit new
customers and our business and future financial results could be materially and
adversely affected.
Reliance on Metalcasting and Construction Industries
Approximately 42% of our minerals segment's sales and 30% of our
environmental segment's sales in 2003 were to the metalcasting and construction
markets, respectively. The metalcasting and construction markets depend heavily
upon the strength of the domestic and international economies. If these
economies weaken, demand for products by the metalcasting and construction
markets may decline and our business or future financial results in the minerals
and environmental segments may be adversely affected.
Regulatory and Legal Matters
Our operations are subject to various federal, state, local and foreign
laws and regulations relating to the environment and to health and safety
matters. Substantial penalties may be imposed if we violate certain of these
laws and regulations even if the violation was inadvertent or unintentional. If
these laws or regulations are changed or interpreted differently in the future,
it may become more difficult or expensive for us to comply. In addition,
investigations or evaluations of our products by government agencies may require
us to adopt additional safety measures or precautions. If our costs to comply
with such laws and regulations in the future materially increase, our business
and future financial results could be materially and adversely affected. We may
also be subject to adverse litigation results in addition to increased
compliance costs arising from future changes in laws and regulations that may
negatively impact our operations and profits.
Risks of International Expansion
An important part of our business strategy is to expand internationally.
We intend to seek acquisitions, joint ventures and strategic alliances globally.
In 2003, our business outside the United States represented approximately 34% of
our consolidated sales. The approximate breakdown of the sales outside of the
United States for 2003 was as follows: Europe 70%; Asia Pacific 25%; and other
regions 5%. As we expand internationally, we will be subject to increased risks,
which may include the following:
o currency exchange or price control laws;
o currency translation adjustments;
o political and economic instability;
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o longer accounts receivable collection cycles; and
o adverse tax consequences.
The above listed events could result in sudden, and potentially prolonged,
changes in demand our products. Also, we may have difficulty enforcing
agreements and collecting accounts receivable through a foreign country's legal
system. At December 31, 2003, approximately 48% of the gross accounts receivable
were due from customers outside of the United States and Canada. The breakdown
of the overseas balance was as follows: Europe 67%; Asia Pacific 24%; and other
regions 9%.
Bulk cargo shipping costs are rising significantly due to acute demand
from China. We rely on shipping bulk cargos of bentonite from the U.S. and China
to customers as wells as our own subsidiaries. This issue is not isolated to
AMCOL; however, we may need to offset additional shipping costs with price
increases to customers in order to maintain our profitability. We are also
reviewing our shipping patterns to determine more cost-effective means of
transporting bulk cargos.
26
Volatility of Stock Price
The stock market has been extremely volatile in recent years. These broad
market fluctuations may adversely affect the market price of our common stock.
In addition, factors such as the following may have a significant effect on the
market price of our common stock:
o fluctuations in our financial results;
o our introduction of new services or products;
o announcements of acquisitions, strategic alliances or joint ventures
by us, our customers or our competitors;
o changes in analysts' recommendations regarding our common stock; and
o general economic conditions.
There can be no assurance that the price of our common stock will increase
in the future or be maintained at its recent levels.
New Accounting Standards
In May 2003, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" (SFAS
150). This Statement establishes standards for the classifications and
measurement of certain financial instruments with characteristics of both
liabilities and equity. This Statement also includes required disclosures for
financial instruments within its scope. This Statement was effective for
instruments entered into or modified after May 31, 2003 and otherwise was
effective July 1, 2003. For certain mandatorily redeemable financial
instruments, the Statement will be effective January 1, 2005. The effective date
has been deferred indefinitely for certain other types of mandatorily redeemable
financial instruments. We do not currently have any financial instruments that
are within the scope of this Statement.
In December 2003, FASB Statement No. 132 (revised), "Employers'
Disclosures about Pensions and Other Postretirement Benefits," was issued.
Statement 132 (revised) prescribes employers' disclosures about pension plans
and other postretirement benefit plans; it does not change the measurement or
recognition of those plans. The Statement retains and revises the disclosure
requirements contained in the original Statement 132. It also requires
additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other postretirement
benefit plans. The Statement generally is effective for fiscal years ending
after December 15, 2003. The Company's disclosures in note 11 incorporate the
requirements of Statement 132 (revised).
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation that manufactures and markets products in
countries throughout the world, we are subject to certain market risks,
including those related to foreign currency, interest rates and government
actions. We use a variety of practices to manage these market risks, including,
when considered appropriate, derivative financial instruments. We use derivative
financial instruments only for risk management and does not use them for trading
or speculative purposes.
Exchange Rate Sensitivity
We are exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. Our primary exposures are to changes in exchange rates for the U.S.
dollar versus the euro, the British pound, the Canadian dollar and the Polish
zloty. We also have significant exposure to changes in exchange rates between
the British pound and the euro and the Polish zloty and the euro.
27
Our various currency exposures often offset each other, providing a
natural hedge against currency risk. Periodically, specific foreign currency
transactions (e.g. inventory purchases) are hedged with forward contracts to
reduce the foreign currency risk. As of December 31, 2003, we had no material
outstanding foreign currency contracts.
Interest Rate Sensitivity
The following table provides information about our financial instruments
that are sensitive to changes in interest rates. The table presents principal
cash flows and related weighted average interest rates by expected maturity
dates for debt obligations. Weighted average variable rates are based on implied
forward rates in the yield curve at the reporting date. The information is
presented in U.S. dollar equivalents, which is our reporting currency. The
instruments' actual cash flows are denominated in U.S. dollars (US), Chinese
renmimbi (RMB) and Thai baht (THB) as indicated in parentheses.
- ----------------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
---------------------------------------------------------------------------------------------
Fair
2004 2005 2006 2007 2008 Thereafter Total Value
- ----------------------------------------------------------------------------------------------------------------------------------
(US$ equivalent in thousands)
Short-term debt:
Variable rate (US) $ 844 $ -- $ -- $ -- $ -- $ -- $ 844 $ 844
Average interest rate 4.0% -- -- -- -- -- -- --
Long-term debt:
Variable rate (US) -- -- 4,000 -- -- 4,800 8,800 8,800
Average interest rate -- -- 1.8% -- -- 1.2% -- --
Variable rate (RMB) -- -- -- -- -- 181 181 181
Average interest rate -- -- -- -- -- 5.8% -- --
Variable rate (THB) -- -- -- -- -- 25 25 25
Average interest rate -- -- -- -- -- 3.5% -- --
------ ------ -------- ----- ----- -------- -------- --------
Total $ 844 $ -- $ 4,000 $ -- $ -- $ 5,006 $ 9,850 $ 9,850
====== ====== ======== ===== ===== ======== ======== ========
- ----------------------------------------------------------------------------------------------------------------------------------
We periodically use interest rate swaps to manage interest rate risk on
debt securities. These instruments allow us to change the characteristics of
variable rate debt into fixed rate or fixed rate debt into variable rate.
Interest rate differentials are paid or received on these arrangements over the
life of the agreements. At the end of 2003 and 2002, there were no interest rate
swaps outstanding.
Credit Risk
We are exposed to credit risk on certain assets, primarily accounts
receivable. We provide credit to customers in the ordinary course of business
and perform ongoing credit evaluations. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising our customer base. We currently believe our allowance for doubtful
accounts is sufficient to cover customer credit risks. Our accounts receivable
financial instruments are carried at amounts that approximate fair value.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Financial Statement Schedule on
Page F-1. Such financial statements and schedule are incorporated herein by
reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
28
Item 9A. Controls and Procedures
An evaluation was performed under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934) as of December 31, 2003. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports the Company files or submits under the
Exchange Act are recorded, processed, summarized and reported as and when
required.
There have been no changes in our internal controls over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated
under the Securities Exchange Act of 1934) during the fourth quarter of 2003
that materially affected, or are reasonably likely to materially affect, our
internal controls over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the directors of the Company is included under the
captions "Election of Directors", "Corporate Governance Matters" and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive
proxy statement, which will be filed with the Securities and Exchange Commission
not later than 120 days after the end of the fiscal year covered by this Form
10-K, and is incorporated herein by reference.
Information regarding the executive officers of the Company is included
under a separate caption in Part I hereof in accordance with General Instruction
G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
We have adopted a Code of Business Conduct and Ethics (the "Code") that
applies to our principal executive officer, principal financial officer,
principal accounting officer or controller and persons performing similar
functions, as well as other employees. The Code, our Corporate Governance
Guidelines and the charters of our Audit Committee, Compensation Committee and
Nominating and Governance Committee are publicly available on our website at
www.amcol.com and are available in print, free of charge, to any shareholder
upon request to the Company's Corporate Secretary at AMCOL International
Corporation, One North Arlington, 1500 West Shure Drive, Suite 500, Arlington
Heights, Illinois 60004-7803. If we make any substantive amendments to the Code
or grant any waiver, including any implicit waiver, from a provision of the Code
to our principal executive officer, principal financial officer, principal
accounting officer or controller or persons performing similar functions, we
will disclose the nature of such amendment or waiver on our website or in a
report on Form 8-K in accordance with applicable rules and regulations.
Item 11. Executive Compensation
Information regarding the above is included under the captions "Named
Officers' Compensation" and "Stock Performance Graph" in the Company's
definitive proxy statement, which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is included under the caption "Security Ownership" in the Company's
definitive proxy statement, which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K, and is incorporated herein by reference.
29
Information regarding the Company's securities authorized for issuance
under equity compensation plans is included under the caption "Named Officers'
Compensation" and "Equity Compensation Plan Information" in the Company's
definitive proxy statement, which will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year covered by
this Form 10-K, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding the above is included under the caption "Certain
Relationships and Related Transactions" in the Company's definitive proxy
statement, which will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K,
and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is included
under the captions "Independent Public Accountants" and "Corporate Governance
Matters - The Audit Committee" in the Company's definitive proxy statement,
which will be filed with the Securities and Exchange Commission not later than
120 days after the end of the fiscal year covered by this Form 10-K, and is
incorporated herein by reference.
30
PART IV
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) 1. See Index to Financial Statements and Financial Statement
Schedule below.
-----------------------------------------------------------------------
2. See Financial Statements and Index to Financial Statement
Schedule below.
-----------------------------------------------------------------------
Such Financial Statements and Schedule are incorporated
herein by reference.
-----------------------------------------------------------------------
3. See Index to Exhibits immediately following the signature
page.
- --------------------------------------------------------------------------------
(b) On October 20, 2003, we filed a current report on Form 8-K, which
included a press release dated October 20, 2003, announcing results
for our third quarter ended September 30, 2003.
- --------------------------------------------------------------------------------
(c) See Index to Exhibits immediately following the signature page.
- --------------------------------------------------------------------------------
(d) See Index to Financial Statements and Financial Statement Schedule
below.
- --------------------------------------------------------------------------------
Item 15(a) Index to Financial Statements and Financial Statement Schedule
- --------------------------------------------------------------------------------
Page
- --------------------------------------------------------------------------------
(1) Financial Statements:
- --------------------------------------------------------------------------------
Independent Auditors' Report F-2
- --------------------------------------------------------------------------------
Consolidated Balance Sheets, December 31, 2003 and 2002 F-3
- --------------------------------------------------------------------------------
Consolidated Statements of Operations, Years ended
December 31, 2003, 2002 and 2001 F-4
- --------------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income, Years ended
December 31, 2003, 2002 and 2001 F-5
- --------------------------------------------------------------------------------
Consolidated Statements of Stockholders' Equity, Years ended
December 31, 2003, 2002 and 2001 F-6
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows, Years ended
December 31, 2003, 2002 and 2001 F-7
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-8
- --------------------------------------------------------------------------------
(2) Financial Statement Schedule:
- --------------------------------------------------------------------------------
Schedule II - Valuation and Qualifying Accounts F-27
- --------------------------------------------------------------------------------
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required, or because the required
information is not material.
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
AMCOL International Corporation:
We have audited the consolidated financial statements of AMCOL
International Corporation and subsidiaries as listed in the accompanying index.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMCOL
International Corporation and subsidiaries as of December 31, 2003 and 2002, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
As described in note 1 to the consolidated financial statements, the
Company changed its method of accounting for stock based compensation effective
January 1, 2003, and its method of accounting for goodwill as of January 1,
2002.
KPMG LLP
Chicago, Illinois
March 8, 2004
F-2
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
ASSETS December 31,
----------------------
2003 2002
- --------------------------------------------------------------------------------
Current assets:
Cash $ 13,525 $ 15,597
Accounts receivable:
Trade, less allowance for doubtful
accounts of $3,455 and $2,642 in 2003 and
2002, respectively 58,385 45,675
Other 2,612 3,195
Inventories 46,182 38,854
Prepaid expenses 5,858 4,270
Current deferred tax assets 3,289 2,825
Income taxes receivable 8,445 717
-------- --------
Total current assets 138,296 111,133
-------- --------
Investment in and advances to joint ventures 13,068 12,419
-------- --------
Property, plant, equipment, and
mineral rights and reserves:
Land and mineral rights 10,275 9,543
Depreciable assets 226,221 203,334
-------- --------
236,496 212,877
Less: accumulated depreciation 149,500 131,030
-------- --------
86,996 81,847
-------- --------
Other assets:
Goodwill 5,633 4,937
Intangible assets, less accumulated
amortization of $622 and $453 1,345 265
Deferred tax assets 4,790 2,669
Other assets 8,649 8,558
-------- --------
20,417 16,429
-------- --------
$258,777 $221,828
======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY December 31,
----------------------
2003 2002
- --------------------------------------------------------------------------------
Current liabilities:
Current maturities of long-term debt and
notes payable $ 844 $ 12,600
Accounts payable 20,365 17,918
Accrued liabilities 30,142 22,121
-------- --------
Total current liabilities 51,351 52,639
-------- --------
Long-term debt 9,006 5,573
-------- --------
Minority interests in subsidiaries 116 615
Other liabilities 13,406 11,618
-------- --------
13,522 12,233
-------- --------
Stockholders' equity:
Common stock, par value $.01 per share
Authorized 100,000,000 shares; issued
32,015,771 shares in 2003 and 2002 320 320
Additional paid in capital 67,513 69,850
Retained earnings 125,627 101,322
Accumulated other comprehensive income 8,372 2,005
-------- --------
201,832 173,497
Less:
Treasury stock (2,908,025 and 4,133,868 shares in
2003 and 2002, respectively) 16,934 22,114
-------- --------
184,898 151,383
-------- --------
$258,777 $221,828
======== ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------
2003 2002 2001
- ----------------------------------------------------------------------------------------------------------------
Continuing Operations
Net sales $ 363,966 $ 298,873 $ 275,288
Cost of sales 274,415 227,005 208,983
--------- --------- ---------
Gross profit 89,551 71,868 66,305
General, selling and administrative expenses 60,614 52,210 47,740
--------- --------- ---------
Operating profit 28,937 19,658 18,565
--------- --------- ---------
Other income (expense):
Investment income -- -- 3,015
Change in value of interest rate swap -- -- (401)
Interest expense, net (280) (512) (2,196)
Other, net 604 43 223
--------- --------- ---------
324 (469) 641
--------- --------- ---------
Income before income taxes, equity in income of joint ventures, 29,261 19,189 19,206
and minority interest
Income tax expense 9,946 6,916 6,155
--------- --------- ---------
Income before equity in income of joint ventures and minority interest 19,315 12,273 13,051
Income from joint ventures 600 531 28
Minority interest in net loss of subsidiary -- 164 59
--------- --------- ---------
Income from continuing operations 19,915 12,968 13,138
--------- --------- ---------
Discontinued Operations
Loss from operations (net of income taxes) -- -- (879)
Gain on 2001 disposal (including income tax benefits of
$8,741 and $6,000 in 2003 and 2001, respectively) 8,950 -- 1,154
--------- --------- ---------
Income from discontinued operations 8,950 -- 275
--------- --------- ---------
Cumulative effect of change in accounting principle (net of taxes) -- -- (182)
--------- --------- ---------
Net income $ 28,865 $ 12,968 $ 13,231
========= ========= =========
- ----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Continued...
F-4
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Earnings per share
Basic earnings per share:
Continuing operations $ 0.70 $ 0.46 $ 0.47
-------- -------- --------
Discontinued operations:
Loss from operations -- -- (0.03)
Gain on disposal 0.32 -- 0.04
-------- -------- --------
0.32 -- 0.01
-------- -------- --------
Cumulative effect of change in
accounting principle -- -- (0.01)
-------- -------- --------
Net income $ 1.02 $ 0.46 $ 0.47
======== ======== ========
Diluted earnings per share:
Continuing operations $ 0.67 $ 0.43 $ 0.43
-------- -------- --------
Discontinued operations:
Loss from operations -- -- (0.03)
Gain on disposal 0.30 -- 0.04
-------- -------- --------
0.30 -- 0.01
-------- -------- --------
Cumulative effect of change in
accounting principle -- -- (0.01)
-------- -------- --------
Net income $ 0.97 $ 0.43 $ 0.43
======== ======== ========
- --------------------------------------------------------------------------------
Consolidated Statements of Comprehensive Income
(In thousands)
- --------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Net income $28,865 $12,968 $ 13,231
Other comprehensive income (loss) -
Foreign currency translation adjustment 6,367 4,693 (1,193)
------- ------- --------
Comprehensive income $35,232 $17,661 $ 12,038
======= ======= ========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-5
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(In thousands, except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------ Accumulated
Other
Number Amount Additional Comprehensive Total
of Paid-in Retained Income Treasury
Shares Capital Earnings (Loss) Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 32,015,771 $320 $ 75,536 $ 79,335 $(1,495) $(18,790) 134,906
Net income -- -- -- 13,231 -- -- 13,231
Cash dividends ($0.055 per share) -- -- -- (1,549) -- -- (1,549)
Translation adjustment -- -- -- -- (1,193) -- (1,193)
Purchase of 1,788,800 treasury
shares -- -- -- -- -- (7,776) (7,776)
Sales of 1,263,885 treasury
shares pursuant to options -- -- (4,537) -- -- 6,738 2,201
Tax benefit from employee stock plans -- -- 906 -- -- -- 906
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2001 32,015,771 320 71,905 91,017 (2,688) (19,828) 140,726
Net income -- -- -- 12,968 -- -- 12,968
Cash dividends ($0.095 per share) -- -- -- (2,663) -- -- (2,663)
Translation adjustment -- -- -- -- 4,693 -- 4,693
Purchase of 1,248,407 treasury
shares -- -- -- -- -- (6,933) (6,933)
Sales of 873,921 treasury
shares pursuant to options -- -- (2,993) -- -- 4,647 1,654
Tax benefit from employee stock plans -- -- 938 -- -- -- 938
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2002 32,015,771 320 69,850 101,322 2,005 (22,114) 151,383
Net income -- -- -- 28,865 -- -- 28,865
Cash dividends ($0.16 per share) -- -- -- (4,560) -- -- (4,560)
Translation adjustment -- -- -- -- 6,367 -- 6,367
Purchase of 266,963 treasury --
shares -- -- -- -- -- (2,853) (2,853)
Sales of 1,492,806 treasury --
shares pursuant to options -- -- (5,145) -- 7,273 2,128
Tax benefit from employee stock plans -- -- 2,195 -- -- -- 2,195
Vesting of common stock in connection
with employee stock plans -- -- 613 -- -- 760 1,373
---------- --- ------ ------- ----- ------- -------
Balance at December 31, 2003 32,015,771 320 67,513 125,627 8,372 (16,934) 184,898
========== === ====== ======= ===== ======= =======
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flow from operating activities:
Income from continuing operations $ 19,915 $ 12,968 $ 13,138
Adjustments to reconcile income from
continuing operations to
net cash provided by operating activities:
Depreciation, depletion, and amortization 18,160 20,009 17,427
Equity in income of joint ventures (600) (531) (28)
Minority interest in net loss of subsidiary -- (164) (59)
Change in minority interest in subsidiaries -- 92 523
Increase (decrease) in allowance for doubtful accounts 813 515 (105)
Decrease (increase) in deferred income taxes (2,586) 2,882 988
Tax benefit from employee stock plans 2,195 938 906
Gain on sale of depreciable assets (73) (11) (368)
Stock compensation expense 613 -- --
(Increase) decrease in current assets,
net of effects of acquisitions:
Accounts receivable (12,615) (2,133) (601)
Income taxes receivable 897 2,403 (120)
Inventories (6,721) (585) (4,265)
Prepaid expenses (1,588) 149 1,727
Increase (decrease) in current liabilities,
net of effects of acquisitions:
Accounts payable 2,447 5,051 (627)
Accrued income taxes -- -- (5,546)
Accrued liabilities 7,856 (1,805) 564
Increase in other noncurrent assets (1,345) (3,026) --
Increase in other noncurrent liabilities 528 867 809
-------- -------- ---------
Net cash provided by operating activities of
continuing operations 27,896 37,619 24,363
-------- -------- ---------
Net cash provided by discontinued operations -- -- 1,614
-------- -------- ---------
Cash flow from investing activities:
Proceeds from sale of depreciable assets 195 187 530
Tax payments related to the absorbent
polymers segment sale -- -- (130,365)
Acquisition of land, mineral reserves, and
depreciable assets (15,795) (16,223) (14,730)
(Increase) decrease in investments in and
advances to joint ventures (49) 1,495 (460)
Acquisitions (7,144) (16,982) --
Payment of minority interest (499) -- --
Increase in other assets 1,255 (17) (55)
-------- -------- ---------
Net cash used in investing activities (22,037) (31,540) (145,080)
-------- -------- ---------
Cash flow from financing activities:
Proceeds from issuance of debt 17,145 28,100 --
Principal payments of debt (25,469) (23,172) (39,131)
Proceeds from sales of treasury stock 2,888 1,653 2,201
Purchases of treasury stock (1,593) (6,933) (7,776)
Cumulative effect of change in accounting principle -- -- (182)
Dividends paid (4,560) (2,663) (1,549)
-------- -------- ---------
Net cash used in financing activities (11,589) (3,015) (46,437)
-------- -------- ---------
Effect of foreign currency rate changes on cash 3,658 2,213 (890)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (2,072) 5,277 (166,430)
Cash and cash equivalents at beginning of year 15,597 10,320 176,750
-------- -------- ---------
Cash and cash equivalents at end of year $ 13,525 $ 15,597 $ 10,320
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 415 $ 671 $ 2,540
======== ======== =========
Income taxes (net of refunds) $ 12,808 $ 1,632 $ 134,151
======== ======== =========
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-7
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies
Company Operations
AMCOL International Corporation (the Company) operates in two principal
areas of activity: minerals and environmental. The Company also operates a
transportation business which includes delivery of its own products. In 2003,
the Company's revenues were derived 57% from minerals, 33% from environmental
and 10% from transportation operations. The Company's sales in 2003 were
approximately 66% domestic and 34% outside of the United States. Further
descriptions of the Company's products, its principal markets and the relative
significance of its operations are included in Note 3, "Business Segment and
Geographic Area Information."
During 2001, the Company disposed of its U.K. metalcasting business and
completed the sale and closure of its U.K. cat litter operations. The Company
has reclassified the net assets and results of these operations as discontinued
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its foreign and domestic subsidiaries. All subsidiaries greater than 50%
owned by the Company are consolidated. The Company's ownership interests in the
U.K., Mexican, Indian, and Egyptian ventures range between 20% and 50%.
Accordingly, these investments are accounted for using the equity method. The
Company's ownership interest in the Japanese investment is less than 20% and is
recorded at cost. All material intercompany balances and transactions between
wholly-owned subsidiaries, including profits on inventories, have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
Translation of Foreign Currencies
The assets and liabilities of subsidiaries located outside of the United
States are translated into U.S. dollars at the rates of exchange at the balance
sheet dates. The statements of operations are translated at the weighted average
rates during the periods. Foreign exchange translation adjustments are
accumulated as a separate component of stockholders' equity, while foreign
currency transaction gains or losses are included in income.
Inventories
Inventories are valued at the lower of cost or net realizable value. Cost
is determined by the first-in, first-out (FIFO) or moving average methods.
Exploration costs are expensed as incurred. Costs incurred in removing
overburden and mining bentonite are capitalized as advance mining costs until
the bentonite from such mining area is transported to the plant site, at which
point the costs are included in crude bentonite stockpile inventory.
Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves are carried at
cost less accumulated depreciation. Depreciation is computed using the
straight-line method for substantially all of the assets. Certain other assets,
primarily field equipment, are depreciated on the units-of-production method.
Mineral rights and reserves are depleted using the units-of-production method.
F-8
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value
of the net assets of acquired businesses. Prior to 2002, goodwill was amortized
on the straight-line method over periods of five to 10 years. The Company
adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill
and Other Intangible Assets", effective January 1, 2002. Pursuant to SFAS 142,
goodwill is not subject to amortization, but is tested annually (or more
frequently if impairment indicators arise) for impairment. Other intangibles,
including trademarks and non-compete agreements, are amortized on the
straight-line method over the expected periods to be benefited, which extend up
to 10 years.
At the date of adoption of SFAS 142, the goodwill balance included in the
Company's consolidated balance sheet was not significant.
The adoption of SFAS 142's provisions relating to goodwill amortization
resulted in the Company discontinuing the amortization of goodwill effective
January 1, 2002. Goodwill amortization expense was not significant in 2001.
Impairment of Long-Lived Assets
The Company reviews the carrying values of long-lived assets whenever
facts and circumstances indicate that the assets may be impaired. Recoverability
of assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net undiscounted cash flows expected to be generated by
the asset. If an asset is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the asset
exceeds the fair value. Assets to be disposed of are reported at the lower of
the carrying amount or fair value, less costs of disposal.
Income Taxes
The Company and its U.S. subsidiaries file a consolidated tax return.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect for the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Revenue Recognition
Product revenue is recognized when products are shipped to customers.
Allowances for discounts, rebates, and estimated returns are recorded at the
time of sale and are reported as a reduction in revenue.
Land Reclamation
The Company mines various minerals using a surface-mining process which
requires the removal of overburden. The Company is obligated to restore the land
comprising each mining site to its original condition at the completion of
mining activity. The Company recognizes the liability for land reclamation based
on the estimated fair value of the obligation. The obligation is adjusted to
reflect the passage of time and changes in estimated future cash outflows.
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
F-9
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
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 December 31, 2003 the Company's recorded reclamation obligation was
$5,060. During the year ended December 31, 2003, the obligation was reduced by
$1,448 due to payments made in connection with ongoing reclamation activities
offset by accretion of $130 and recognition of additional obligations resulting
from normal mining activities of $1,393.
Shipping Revenues and Costs
The Company reports shipping and handling costs that are passed on to
customers as sales revenue and cost of sales in the consolidated statements of
operations.
Research and Development
Research and development costs are included in general, selling and
administrative expenses and amounted to approximately $5,018, $5,953 and $5,039
for the years ended December 31, 2003, 2002 and 2001, respectively.
Earnings Per Share
Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding. Diluted earnings per share
is computed by dividing net income by the weighted average common shares
outstanding after consideration of the dilutive effect of stock options. A
reconciliation between the number of shares used to compute basic and diluted
earnings per share follows:
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average of common shares outstanding for the year 28,357,009 28,133,795 28,193,234
Dilutive impact of stock options 1,492,569 2,014,725 2,412,826
---------- ---------- ----------
Weighted average of common and common equivalent shares for the year 29,849,578 30,148,520 30,606,060
========== ========== ==========
Common shares outstanding at December 31 29,107,746 27,881,903 28,256,389
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Stock-Based Compensation
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
operations prior to 2003, as all options granted 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 (SFAS 123), and has
elected to apply these provisions prospectively, in accordance with SFAS No.
148, Accounting for Stock-Based Compensation-Transition and Disclosure, an
Amendment of FASB Statement No. 123, 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 if the fair value based method had been
applied to all awards since the original effective date of SFAS 123.
F-10
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Results for prior years have not been adjusted to reflect the use of the
fair value based method of accounting for employee awards. 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:
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------
2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Net income, as reported $ 28,865 $ 12,968 $ 13,231
Add: Stock-based employee compensation expense included in reported
net income, net of related tax effects 405 -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (962) (781) (652)
---------- ---------- ----------
Pro forma net income $ 28,308 $ 12,187 $ 12,579
========== ========== ==========
Earnings per share:
Basic - as reported $ 1.02 $ 0.46 $ 0.47
Basic - pro forma $ 1.00 $ 0.43 $ 0.45
Diluted - as reported $ 0.97 $ 0.43 $ 0.43
Diluted - pro forma $ 0.95 $ 0.40 $ 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Derivative Instruments and Hedging Activities
The Company occasionally uses derivative financial instruments
(principally interest rate swaps or options) to manage its exposure to changes
in interest rates. The Company does not use derivative instruments for trading
or other speculative purposes. The Company had no derivative financial
instruments outstanding at December 31, 2003 and 2002.
Reclassifications
Certain items in the 2002 and 2001 consolidated financial statements have
been reclassified to conform with the consolidated financial statement
presentation for 2003.
(2) Discontinued Operations
In 2000 the Company announced its intention to close its U.K. cat litter
business. Certain assets used in the business were sold to various outside
parties for cash proceeds of $720. The closure was completed in 2001. The U.K.
cat litter business was a component of the Company's minerals segment.
In 2001, the Company sold its U.K. metalcasting business to a group
comprised in part of former management of the business. The Company did not
receive any proceeds from the sale. Included in the sale were certain machinery
and equipment. The acquirer entered into a license agreement for the right to
use certain trademarks for a period of ten years, and leases certain land and
buildings from the Company. The U.K. metalcasting business was a component
entity of the Company's minerals segment.
The consolidated financial statements have been reclassified to report
separately the net assets and operating results of the U.K. metalcasting and cat
litter business and for all periods presented.
F-11
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Summary operating results for 2001 for the discontinued operations are as
follows:
- --------------------------------------------------------------------------------
U.K. metalcasting and cat litter businesses 2001
- --------------------------------------------------------------------------------
Net sales $ 8,760
Operating loss (1,174)
Income tax expense (benefit) (384)
Net loss (879)
- --------------------------------------------------------------------------------
In 2001, the Company allocated $199 of interest expense to discontinued
operations based upon the debt balances attributable to these operations.
The Company recognized a gain related to the disposal of discontinued
operations of $1,154 (including a tax benefit of $6,000) in 2001. The tax
benefit recognized in 2001 included a reduction of previously recognized tax
reserves.
In 2003, the Internal Revenue Service concluded audits which resulted in a
reduction of the Company's income taxes payable of approximately $8.9 million
related to the sale of the U.K. metalcasting and closure of the U.K. cat litter
businesses. Those audits resulted in an actual tax liability that was lower than
the estimate of taxes payable related to those periods. Therefore, the Company
adjusted its estimate of taxes payable to reflect the actual amount due as of
December 31, 2003 and recorded $8.9 million of income to discontinued
operations.
(3) Business Segment and Geographic Area Information
The Company operates in two principal business segments: minerals and
environmental. The Company also operates a transportation business. The minerals
segment mines, processes and distributes clays and products with similar
applications to various industrial and consumer markets. The environmental
segment processes and distributes clays and products with similar applications
for use as a moisture barrier in commercial construction, landfill liners and in
a variety of other industrial and commercial applications. The transportation
segment includes a long-haul trucking business and a freight brokerage business,
which provide services to both the Company's plants and outside customers.
The Company identifies segments based on management responsibility and the
nature of the business activities of each component of the Company. Intersegment
sales are insignificant, other than intersegment shipping, which is disclosed in
the following table. The Company measures segment profit based on operating
profit. Operating profit is defined as sales less cost of sales and general,
selling and administrative expenses related to a segment's operations. The costs
deducted to arrive at operating profit do not include interest or income taxes.
Segment assets are those assets used in the Company's operations in that
segment. Corporate assets include cash, corporate leasehold improvements, the
nanocomposite plant investment and other miscellaneous equipment.
The following summaries set forth certain financial information by
business segment and geographic area as of and for the years ended December 31,
2003, 2002 and 2001.
F-12
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Business Segment:
Revenues:
Minerals $ 216,046 $ 171,543 $ 149,945
Environmental 124,409 105,926 103,766
Transportation 37,549 32,509 33,133
Intersegment shipping (14,038) (11,105) (11,556)
--------- --------- ---------
Total $ 363,966 $ 298,873 $ 275,288
========= ========= =========
Operating profit (loss):
Minerals $ 23,423 $ 15,870 $ 14,697
Environmental 17,855 14,373 15,154
Transportation 1,547 967 1,363
Corporate (13,888) (11,552) (12,649)
--------- --------- ---------
Total $ 28,937 $ 19,658 $ 18,565
========= ========= =========
Assets:
Minerals $ 144,973 $ 128,566 $ 106,391
Environmental 82,453 65,783 65,216
Transportation 1,891 1,895 1,282
Corporate 29,460 25,584 22,332
Discontinued operations (net liabilities) -- -- 1,109
--------- --------- ---------
Total $ 258,777 $ 221,828 $ 196,330
========= ========= =========
Depreciation, depletion and amortization:
Minerals $ 10,334 $ 10,840 $ 9,984
Environmental 5,252 6,615 4,820
Transportation 88 58 37
Corporate 2,486 2,496 2,586
--------- --------- ---------
Total $ 18,160 $ 20,009 $ 17,427
========= ========= =========
Capital expenditures:
Minerals $ 6,464 $ 8,263 $ 8,431
Environmental 7,660 6,174 5,691
Transportation 80 145 41
Corporate 1,591 1,641 567
--------- --------- ---------
Total $ 15,795 $ 16,223 $ 14,730
========= ========= =========
Research and development expenses:
Minerals $ 2,184 $ 2,632 $ 1,677
Environmental 1,873 2,051 1,777
Corporate 961 1,270 1,585
--------- --------- ---------
Total $ 5,018 $ 5,953 $ 5,039
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------------------------
Continued...
F-13
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(3) Business Segment and Geographic Area Information (Continued)
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Geographic area:
Sales to unaffiliated
customers shipped to:
North America $241,405 $218,059 $220,626
Europe 87,054 54,774 29,949
Asia Pacific 30,906 21,218 22,316
Other 4,601 4,822 2,397
-------- -------- --------
Total $363,966 $298,873 $275,288
======== ======== ========
Operating profit from sales to:
North America $ 15,188 $ 10,263 $ 11,173
Europe 8,655 5,966 4,929
Asia Pacific 4,113 2,409 1,917
Other 981 1,020 546
-------- -------- --------
Total $ 28,937 $ 19,658 $ 18,565
======== ======== ========
Identifiable assets in:
North America $165,251 $144,068 $149,370
Europe 69,108 57,579 28,651
Asia Pacific 24,418 20,181 17,200
Discontinued operations -- -- 1,109
-------- -------- --------
Total $258,777 $221,828 $196,330
======== ======== ========
- --------------------------------------------------------------------------------
The Company reported revenues for the following product lines:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Metalcasting $ 91,393 $ 83,110 $ 78,471
Pet products 47,729 43,864 48,421
Specialty Minerals 76,924 44,569 23,053
Lining technologies 53,428 37,123 36,089
Water treatment 34,146 36,886 37,021
Building materials 36,835 31,917 30,656
Transportation 37,549 32,509 33,133
Intersegment shipping revenue (14,038) (11,105) (11,556)
--------- --------- ---------
Total $ 363,966 $ 298,873 $ 275,288
========= ========= =========
- --------------------------------------------------------------------------------
(4) Inventories
Inventories at December 31 consisted of:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Advance mining $ 2,605 $ 2,836
Crude stockpile inventories 14,410 11,330
In-process inventories 14,190 15,142
Other raw material, container, and supplies inventories 14,977 9,546
------- -------
$46,182 $38,854
======= =======
- --------------------------------------------------------------------------------
F-14
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(5) Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment and mineral rights and reserves consisted of
the following:
- --------------------------------------------------------------------------------
December 31, Depreciation/
---------------------- Amortization
2003 2002 Annual Rates
- --------------------------------------------------------------------------------
Mineral rights and reserves $ 4,030 $ 4,269
Other land 6,244 4,609
Buildings and improvements 55,635 47,059 4.9% to 25.0%
Machinery and equipment 170,587 156,940 10.0% to 50.0%
-------- --------
$236,496 $212,877
======== ========
- --------------------------------------------------------------------------------
Depreciation and depletion were charged to income as follows:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Depreciation expense $17,759 $19,064 $16,247
Depletion expense 232 806 1,085
------- ------- -------
$17,991 $19,870 $17,332
======= ======= =======
- --------------------------------------------------------------------------------
(6) Goodwill and Intangible Assets
As of December 31, goodwill and other intangible assets consisted of:
- --------------------------------------------------------------------------------
December 31,
---------------------
2003 2002
- --------------------------------------------------------------------------------
Goodwill $5,633 $4,937
Intangible assets, at cost 1,701 709
Less: accumulated amortization 356 444
------ ------
Intangible assets, net 1,345 265
------ ------
Goodwill and intangible assets, net $6,978 $5,202
====== ======
- --------------------------------------------------------------------------------
The carrying values of goodwill and intangible assets (net) as of December
31, by segment are as follows:
- --------------------------------------------------------------------------------
December 31,
---------------------
2003 2002
- --------------------------------------------------------------------------------
Goodwill
Minerals $5,394 $4,937
Environmental 239 --
Intangible assets, net
Minerals 494 265
Environmental 504 --
Corporate 347 --
------ ------
Goodwill and intangible assets, net $6,978 $5,202
====== ======
- --------------------------------------------------------------------------------
In accordance with SFAS 142, the Company evaluated the goodwill assigned
to each segment for impairment, using the discounted cash flow valuation method.
The company concluded that there was no indication of goodwill impairment. If
indicators of impairment are deemed to be present, and future cash flows are not
expected to be sufficient to recover the assets and carrying amounts, and
impairment loss would be charged to expense in the period identified.
F-15
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The Company reviewed the intangible assets, net book values and estimated
useful lives by class. As of December 31, 2003, there was no impairment related
to the intangible assets. The company will continue to amortize the remaining
net book values of intangible assets over their remaining useful lives.
(7) Income Taxes
Total income tax expense (benefit) for the years ended December 31, 2003,
2002 and 2001 was allocated as follows:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Income from continuing operations $ 9,946 $ 6,916 $ 6,155
Discontinued operations (8,741) -- (6,384)
Cumulative effect of change in
accounting principle -- -- (113)
------- ------- -------
$ 1,205 $ 6,916 $ (342)
======= ======= =======
- --------------------------------------------------------------------------------
Domestic and foreign components of income from continuing operations
before income taxes, equity in income of joint ventures and minority interest
are shown below:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Income from continuing operations
before income taxes, equity in income
of joint ventures and minority interest:
Domestic $18,972 $12,266 $14,377
Foreign 10,289 6,923 4,829
------- ------- -------
$29,261 $19,189 $19,206
======= ======= =======
- --------------------------------------------------------------------------------
The components of the provision (benefit) for income taxes attributable to
income from continuing operations before income taxes, equity in income of joint
ventures and minority interest for the years ended December 31, 2003, 2002 and
2001 consisted of:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Provision (benefit) for income taxes:
Federal:
Current $ 8,921 $ 647 $2,379
Deferred (2,296) 2,641 722
State:
Current 1,265 741 697
Deferred (230) 264 72
Foreign:
Current 2,345 2,647 2,091
Deferred (59) (24) 194
------- ------- ------
$ 9,946 $ 6,916 $6,155
======= ======= ======
- --------------------------------------------------------------------------------
The Company's federal income tax returns have been audited through 2001.
F-16
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and liabilities as of December 31, 2003 and
2002 were as follows:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Deferred tax assets attributable to:
Accounts receivable, due to allowance
for doubtful accounts $ 644 $ 436
Inventories 1,669 1,224
Employee benefit plans 4,350 4,190
Intangible assets 2,706 2,160
Maintenance of controlled foreign
corporations 1,443 1,323
Other 1,640 67
-------- -------
Total deferred tax assets 12,452 9,400
Deferred tax liabilities attributable to:
Plant and equipment, due to differences
in depreciation (2,027) (2,132)
Land and mineral reserves, due to
differences in depletion (1,498) (1,527)
Other (848) (247)
-------- -------
Total deferred tax liabilities (4,373) (3,906)
-------- -------
Net deferred tax assets $ 8,079 $ 5,494
======== =======
- --------------------------------------------------------------------------------
The following analysis reconciles the statutory Federal income tax rate to
the effective tax rates related to income from continuing operations before
income taxes, equity in income of joint ventures and minority interest:
- ------------------------------------------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------------------------------------------------------------
Percent Percent Percent
of Pretax of Pretax of Pretax
Amount Income Amount Income Amount Income
- ------------------------------------------------------------------------------------------------------------------------------------
Provision for income taxes
at U.S. statutory rates $ 10,241 35.0% $ 6,716 35.0% $ 6,722 35.0%
Increase (decrease) in taxes
resulting from:
Percentage depletion (1,040) (3.6%) (742) (3.9%) (875) (4.6%)
State taxes 824 2.8% 482 2.5% 453 2.4%
Other (79) (0.2%) 460 2.4% (145) (0.7%)
-------- ---- ------- ---- ------- ----
$ 9,946 34.0% $ 6,916 36.0% $ 6,155 32.1%
======== ==== ======= ==== ======= ====
- ------------------------------------------------------------------------------------------------------------------------------------
The Company has not provided for U.S. federal income and foreign
withholding taxes on approximately $16,800 million of undistributed earnings
from international subsidiaries as of December 31, 2003 because such earnings
are intended to be reinvested indefinitely outside of the United States. If
these earnings were distributed, foreign tax credits may become available under
current law to reduce or eliminate the resulting U.S. income tax liability.
(8) Long-term Debt
Long-term debt consisted of the following:
- --------------------------------------------------------------------------------
December 31,
---------------------
2003 2002
- --------------------------------------------------------------------------------
Borrowings under revolving credit agreement $ 4,000 $12,600
Industrial revenue bond 4,800 5,000
Other notes payable 1,050 573
------- -------
9,850 18,173
Less: current portion 844 12,600
------- -------
$ 9,006 $ 5,573
======= =======
- --------------------------------------------------------------------------------
F-17
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The Company has a committed $100,000 revolving credit agreement, which
matures October 31, 2006. As of December 31, 2003, there was $96,000 in
borrowing capacity available under the line of credit. The revolving credit
agreement is a multi-currency arrangement, which allows the Company to borrow at
an adjusted LIBOR rate plus .625% to 1.20%, depending upon the amount of the
credit line used and certain capitalization ratios. The facility requires
certain covenants to be met including specific amounts of net worth and also
limits the Company's ability to make additional borrowings and guarantees. The
Company was in compliance with these covenants at December 31, 2003. The
interest rate at December 31, 2003 was 1.759%. In addition, the Company has a
revolving credit line of $5,000 for the Thailand operation, as of December 31,
2003; there was $4,875 in borrowing capacity available.
The Company has a short-term credit facility with maximum borrowings of
$2,500, of which $844 was outstanding as of December 31, 2003. No amounts were
outstanding under this facility as of December 31, 2002. The interest rate at
December 31, 2003 was 4%.
At December 31, 2003 and 2002, the Company had outstanding standby letters
of credit of $13.7 million and $13.4 million, respectively. These letters of
credit typically serve to guarantee the Company's performance of its obligations
related to land reclamation and workers' compensation claims. The Company has
recognized the estimated costs of its obligations related to land reclamation
and workers' compensation claims in the accompanying consolidated balance sheets
as of December 31, 2003 and 2002.
Maturities of long-term debt outstanding at December 31, 2003, were as
follows:
- --------------------------------------------------------------------------------
2004 2005 2006 2007 2008 Thereafter
- --------------------------------------------------------------------------------
Borrowings under revolving
credit agreement $-- $ -- $4,000 $-- $ -- $ --
Industrial revenue bond
and other notes payable -- -- -- -- -- 5,006
--- ------ ------ --- ------ ------
$-- $ -- $4,000 $-- $ -- $5,006
=== ====== ====== === ====== ======
- --------------------------------------------------------------------------------
The estimated fair value of the above notes at December 31, 2003, was
approximately equal to their carrying amounts based on discounting future cash
payments using current market interest rates for loans with similar terms and
maturities.
(9) Acquisitions
On May 1, 2002, the Company acquired all of the outstanding stock of Colin
Stewart Minchem Limited (CSM), a specialty minerals and chemical company located
in the United Kingdom, in exchange for cash. The aggregate purchase price was
$15,507. The purchase was financed utilizing the Company's revolving credit
facility.
CSM supplies intermediate products, industrial minerals, inorganic
chemicals, and additives to customers operating in the laundry detergent,
packaging, oil exploration and water treatment markets. The acquisition of CSM
provides an additional platform for the Company to expand its global operations
and presence. The results of CSM's operations have been included in the
consolidated financial statements from the acquisition date.
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 combined results of continuing operations as if the acquisition of CSM
had occurred at the beginning of each year presented. The unaudited pro forma
combined information is not necessarily indicative of the combined results that
would have occurred had the acquisition taken place at the beginning of the
periods presented, nor is it necessarily indicative of future results.
F-18
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
At April 30,
2002
- --------------------------------------------------------------------------------
Current assets $ 6,263
Fixed assets 10,520
Goodwill 4,172
-------
Total assets acquired $20,955
-------
Current liabilities $ 3,023
Other liabilities 2,425
-------
Total liabilities assumed $ 5,448
-------
Net assets acquired $15,507
=======
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Pro Forma Pro Forma
Twelve Months Ended Twelve Months Ended
December 31, December 31,
2002 2001
- --------------------------------------------------------------------------------
Net sales $309,532 $307,265
Income from continuing operations 13,683 15,283
Net income 13,683 15,376
Basic earnings per share 0.49 0.55
Diluted earnings per share 0.45 0.50
- --------------------------------------------------------------------------------
The Company also completed several less significant acquisitions during
2003 and 2002. The acquisitions in these years, individually and in aggregate,
did not materially affect the Company's operating results or financial position
in the years presented. Summarized information related to these acquisitions is
as follows:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Number of acquisitions 3 1
Net cash paid $7,144 $1,475
Goodwill and intangible assets recorded 1,118 369
- --------------------------------------------------------------------------------
The purchase price allocation for a portion of the 2003 acquisitions has
not been finalized as management is in the process of analyzing the fair values
of the acquired assets and liabilities.
(10) Market Risks and Financial Instruments
As a multinational corporation that manufactures and markets products in
countries throughout the world, the Company is subject to certain market risks,
including those related to foreign currency, interest rates and government
actions. The Company uses a variety of practices to manage these market risks,
including, when considered appropriate, derivative financial instruments. The
Company uses derivative financial instruments only for risk management and does
not use them for trading or speculative purposes.
Exchange Rate Sensitivity
The Company is exposed to potential gains or losses from foreign currency
fluctuations affecting net investments and earnings denominated in foreign
currencies. The Company's primary exposures are to changes in exchange rates for
the U.S. dollar versus the euro, the British pound and the Polish zloty. The
Company also has significant exposure to changes in exchange rates between the
British pound and the euro as well as between the Polish zloty and the euro.
The Company's various currency exposures often offset each other,
providing natural hedges against currency risk. Periodically, specific foreign
currency transactions (e.g. inventory purchases) are hedged with forward
contracts to reduce the foreign currency risk. As of December 31, 2003, the
Company did not have any material outstanding foreign currency contracts.
F-19
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Interest Rate Sensitivity
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates. The table presents
principal cash flows and related weighted average interest rates by expected
maturity dates for debt obligations. Weighted average variable rates are based
on implied forward rates in the yield curve at the reporting date. The
information is presented in U.S. dollar equivalents, which is the Company's
reporting currency. The instruments' actual cash flows are denominated in U.S.
dollars (US), Chinese renminbi (RMB) and Thai baht (THB) as indicated in
parentheses.
- ------------------------------------------------------------------------------------------------------------------------------------
Expected Maturity Date
------------------------------------------------------------------------------
Fair
2004 2005 2006 2007 2008 Thereafter Total Value
- ------------------------------------------------------------------------------------------------------------------------------------
(US$ equivalent in thousands)
Short-term debt:
Variable rate (US) $844 $-- $ -- $-- $-- $ -- $ 844 $ 844
Average interest rate 4.0% -- -- -- -- -- -- --
Long-term debt:
Variable rate (US) -- -- 4,000 -- -- 4,800 8,800 8,800
Average interest rate -- -- 1.8% -- -- 1.2% -- --
Variable rate (RMB) -- -- -- -- -- 181 181 181
Average interest rate -- -- -- -- -- 5.8% -- --
Variable rate (THB) -- -- -- -- -- 25 25 25
Average interest rate -- -- -- -- -- 3.5% -- --
---- --- ------ --- --- ------ ------ ------
Total $844 $-- $4,000 $-- $-- $5,006 $9,850 $9,850
==== === ====== === === ====== ====== ======
- ------------------------------------------------------------------------------------------------------------------------------------
The Company periodically uses interest rate swaps to manage interest rate
risk on debt securities. These instruments allow the Company to change variable
rate debt into fixed rate or fixed rate debt into variable rate. Interest rate
differentials are paid or received on these arrangements over the life of the
agreements. At the end of 2003 and 2002, there were no interest rate swaps
outstanding.
The Company is exposed to credit risk on certain assets, primarily cash
equivalents, short-term investments and accounts receivable. The credit risk
associated with cash equivalents and short-term investments is mitigated by the
Company's policy of investing in securities with high credit ratings and
investing through major financial institutions with high credit ratings.
The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. Concentrations of credit risk
with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company believes its
allowance for doubtful accounts is sufficient to cover customer credit risks.
The Company's accounts receivable financial instruments are carried at amounts
that approximate fair value.
(11) Leases
The Company has several noncancelable leases for railroad cars, trailers,
computer software, office equipment, certain automobiles, and office and plant
facilities. Total rent expense under operating lease agreements was
approximately $4,208, $4,099 and $3,672 in 2003, 2002 and 2001, respectively.
Additionally, the Company has three domestic facilities that are being
subleased.
F-20
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following is a schedule of future minimum lease payments for operating
leases (with initial terms in excess of one year) and related sublease income as
of December 31, 2003:
- --------------------------------------------------------------------------------
Minimum Lease
Payments Sublease
---------------------------------- Rental
Domestic Foreign Total Income
- --------------------------------------------------------------------------------
Year ending December 31:
2004 $ 2,814 $204 $ 3,018 $ 458
2005 2,546 121 2,667 500
2006 2,011 19 2,030 538
2007 1,728 6 1,734 565
2008 939 6 945 336
Thereafter -- 235 235 --
------- ---- ------- ------
Total $10,038 $591 $10,629 $2,397
======= ==== ======= ======
- --------------------------------------------------------------------------------
(12) Employee Benefit Plans
The Company has a noncontributory pension plan covering substantially all
of its domestic employees. The benefits are based upon years of service and
qualifying compensation. The Company's funding is calculated using the
actuarially determined unit credit cost method. Contributions are intended to
provide not only for benefits attributed to services to date, but also for those
expected to be earned in the future.
The following tables set forth pension obligations included in the
Company's balance sheet at December 31, 2003 and 2002:
- --------------------------------------------------------------------------------
Pension Benefits
-------------------------
2003 2002
- --------------------------------------------------------------------------------
Change in benefit obligations:
Beginning benefit obligation $ 26,392 $ 22,974
Service cost 1,325 1,157
Interest cost 1,751 1,634
Actuarial loss 1,267 1,570
Benefits paid (1,003) (943)
-------- --------
Ending benefit obligation $ 29,732 $ 26,392
Change in plan assets:
Beginning fair value $ 17,912 $ 20,169
Actual return 4,661 (1,314)
Company contribution 1,112 --
Benefits paid (1,003) (943)
-------- --------
Ending fair value $ 22,682 $ 17,912
Funded status of the plan $ (7,050) $ (8,480)
Unrecognized actuarial and investment
(gain) loss, net 1,884 3,772
Prior service cost 410 441
Transition asset (224) (361)
-------- --------
Accrued pension cost liability
included in the consolidated
financial statements $ (4,980) $ (4,628)
======== ========
- --------------------------------------------------------------------------------
F-21
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Pension cost was comprised of:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Service cost - benefits earned
during the year $ 1,325 $ 1,157 $ 1,053
Interest cost on accumulated
benefit obligation 1,751 1,634 1,556
Expected return on plan assets (1,576) (1,777) (2,170)
Net amortization and deferral (36) (106) (377)
------- ------- -------
Net periodic pension cost $ 1,464 $ 908 $ 62
======= ======= =======
- --------------------------------------------------------------------------------
The following table summarizes the assumptions used in determining the
pension obligation:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Discount rate 6.25% 6.75%
Rate of compensation increase 5.75% 5.75%
Long-term rate of return 8.75% 9.00%
- --------------------------------------------------------------------------------
The valuation of the Company's pension benefit plan was performed as of
October 1, 2003 and 2002. The Company expects to contribute $1,000 to the Plan
in 2004. The accumulated benefit obligation (ABO) was $23,148 and $20,118 at
December 31, 2003 and 2002, respectively.
The Company's Plan assets, by asset category, are as follows:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
--
U.S. equity securities 65% 58%
International equity securities 4% 4%
Fixed income securities and bonds 31% 38%
Real estate and Other 0% 0%
- --------------------------------------------------------------------------------
The Company employs a total return investment approach whereby a mix of
equities and fixed income investments are used to maximize the long-term return
of plan assets for a prudent level of risk. Risk tolerance is established
through careful consideration of plan liabilities, plan funded status, and
corporate financial condition. The investment portfolio contains a diversified
blend of equity and fixed-income investments. The investment objectives
emphasize maximizing returns consistent with ensuring that sufficient assets are
available to meet liabilities, and minimizing corporate cash contributions. The
Plan's assets are managed so as to include investments that balance income and
capital appreciation.
The Plan has a target range for equity securities of between 60% and 75%.
This allocation takes into account factors such as the average age of employees
covered by the Plan (benefit obligations) as well as overall market conditions.
Interim portfolio reviews result in investment allocations being evaluated at
least twice a year by the Pension Committee and rebalancing takes place as
needed. Equity investments are diversified across U.S. and non-U.S. stocks, as
well as growth, value, and small and large capitalizations. Debt securities
include both government and corporate investment vehicles. These include a
series of laddered debt securities as well as bond funds. Although real estate
investments have been employed in the past, none are being used at the present.
AMCOL employs a building block approach in determining the long-term rate
of return for plan assets.
Historical markets are studied and long-term historical relationships
between equities and fixed-income are preserved consistent with the widely
accepted capital market principle that assets with higher volatility generate a
greater return over the long run. Current market factors such as inflation and
interest rates are evaluated before long-term capital market assumptions are
determined. The long-term portfolio return is established via a building block
approach with proper consideration of diversification and rebalancing. The
average long-term rate of return on the Plan's assets since 1994 has been
approximately 9.3%.
F-22
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
In addition to the qualified plan outlined above, the Company sponsors a
supplementary pension plan that provides benefits in excess of qualified plan
limitations for certain employees. The unfunded accrued liability for this plan
was $2,911 and $2,575 at December 31, 2003 and 2002, respectively. However, the
Company has invested assets for the benefit of the employees covered by the
supplemental pension plan in the event that there is a change in control.
The Company also has a savings plan for its U.S. personnel. In 2003, the
Company made a contribution in an amount equal to an employee's contributions up
to a maximum of 4% of the employee's annual earnings. Company contributions are
made using Company stock purchased on the open market. Company contributions
under the savings plan were $1,202 in 2003, $1,251 in 2002 and $1,223 in 2001.
The Company also has a deferred compensation plan and a 401(k) restoration plan
for its executives.
The foreign pension plans, which are not subject to United States pension
funding laws, are funded using individual annuity contracts and, therefore, are
not included in the information reflected above.
(13) 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. 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 granted in 2003 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 if the fair value based method had been applied to all
awards since the original effective date of Statement No. 123. Had compensation
cost for the Company's stock option plans been determined using the fair value
method of accounting described in SFAS 123 for years prior to 2003, the
Company's net income would have been changed to the pro forma amounts indicated
in note 1 of notes to consolidated financial statements.
For purposes of calculating the compensation cost consistent with SFAS
123, the fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 2003, 2002 and 2001:
- --------------------------------------------------------------------------------
2003 2002 2001
- --------------------------------------------------------------------------------
Risk-free interest rate 3.0% 4.5% 5.1%
Expected life of option in years 5 6 6
Expected dividend yield of stock 2.1% 0.9% 1.1%
Expected volatility of stock price 54.9% 44.6% 52.1%
Weighted-average fair value of
options granted $1,763 $2,038 $1,614
- --------------------------------------------------------------------------------
The 1983, 1987 and 1993 Plans
The Company has reserved shares of its common stock for issuance of
incentive and nonqualified stock options to its directors, officers and key
employees under its 1983 Incentive Stock Option Plan, 1993 Stock Plan and 1987
Nonqualified Stock Option Plan. Options awarded under these plans, which entitle
the optionee to one share of common stock, may be exercised at a price equal to
the fair market value of the underlying common stock at the time of grant.
Options awarded under these plans generally vest 40% after two years and
continue to vest at the rate of 20% per year for each year thereafter, until
they are fully vested. Options are exercisable as they vest and expire 10 years
after the date of grant, except in the event of termination, retirement or death
of the optionee, or a change in control of the Company.
F-23
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
These plans expired as of December 31, 2000, though options that were
granted prior to expiration of the plans continue to be valid until the
individual option grants expire. Changes in options outstanding are summarized
as follows:
- ------------------------------------------------------------------------------------------------------------------
December 31, 2003 December 31, 2002 December 31, 2001
------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Expired Stock Option Plans Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1 1,884,421 $ 2.07 2,531,037 $ 2.09 3,680,717 $ 1.94
Exercised (1,169,816) 2.07 (640,958) 1.92 (1,107,934) 1.74
Cancelled (5,326) 1.97 (5,658) 2.23 (41,746) 1.78
---------- --------- ----------
Options outstanding at December 31 709,279 2.07 1,884,421 2.07 2,531,037 2.03
========== ========= ==========
Options exercisable at December 31 709,279 1,725,105 1,981,388
========== ========= ==========
Shares available for future grant
at December 31 -- -- --
========== ========= ==========
- ------------------------------------------------------------------------------------------------------------------
1998 Long-Term Incentive Plan
The Company reserved 3,900,000 shares of its common stock for issuance to
its officers, directors and key employees. This plan provides for the award of
incentive stock options, nonqualified stock options, restricted stock, stock
appreciation rights and phantom stock. Different terms and conditions apply to
each form of award made under the plan. Awards granted in 2003 vested ratably
over a three year period and expire 6 years after the date of grant, except in
the event of termination, retirement or death of the optionee or a change in
control of the Company. Options previously awarded under these plans generally
vested 40% after two years and continued to vest at the rate of 20% per year for
each year thereafter, until they are fully vested. These options are exercisable
as they vest and expire 10 years after the date of grant, except in the event of
termination, retirement or death of the optionee or a change in control of the
Company. Changes in options outstanding are summarized as follows:
- ------------------------------------------------------------------------------------------------------------------
December 31, 2003 December 31, 2002 December 31, 2001
------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1998 Long-Term Incentive Plan Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1 1,731,194 $ 3.46 1,693,162 $ 2.66 1,574,447 $ 2.10
Granted 310,950 5.67 307,450 6.63 326,050 4.95
Exercised (355,334) 2.46 (232,027) 1.84 (156,852) 1.75
Cancelled (75,492) 3.32 (37,391) 3.72 (50,483) 2.85
--------- --------- ---------
Options outstanding at December 31 1,611,318 4.11 1,731,194 3.46 1,693,162 2.66
========= ========= =========
Options exercisable at December 31 634,547 551,527 394,273
========= ========= =========
Shares available for future grant
at December 31 1,450,625 686,083 956,142
========= ========= =========
- ------------------------------------------------------------------------------------------------------------------
Restricted stock awards are independent of option grants and are subject
to restrictions considered appropriate by the Compensation Committee of the
Board of Directors. The shares of restricted stock outstanding at December 31,
2003 are subject to forfeiture if employment terminates prior to six years from
the date of the grant. If certain performance criteria are satisfied, the
forfeiture period may be shortened to three years for a portion of, or the
entire award. During the remaining period through the sixth anniversary of a
grant, ownership of the shares cannot be transferred. Restricted stock has the
same cash dividend and voting rights as other common stock and is considered to
be currently issued and outstanding. The cost of the awards, determined to be
the fair market value of the shares at the date of the grant, is expensed
ratably over the period the restrictions lapse. On May 22, 2003, AMCOL awarded
141,000 shares of restricted stock to six officers, and these same shares were
outstanding at December 31, 2003. Total compensation expense related to this
grant of $921 will be recorded over the three year period.
F-24
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
All Stock Option Plans
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2003:
- --------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
of Contractual Exercise of Exercise
Range of exercise prices Shares Life (Yrs). Price Shares Price
- --------------------------------------------------------------------------------------------
$ 1.350 - $ 1.830 599,638 4.19 $ 1.595 484,699 $ 1.601
2.062 - 2.287 613,906 3.83 2.196 597,841 2.194
2.374 - 5.670 821,453 6.08 4.739 259,286 3.877
5.980 - 6.650 285,600 8.12 6.625 2,000 6.650
--------- ---------
Total 2,320,597 5.25 3.486 1,343,826 2.312
========= =========
- --------------------------------------------------------------------------------------------
(14) Accrued Liabilities
Accrued liabilities at December 31 consisted of:
- --------------------------------------------------------------------------------
2003 2002
- --------------------------------------------------------------------------------
Accrued severance taxes $ 2,588 $ 1,886
Accrued employee costs 1,813 1,416
Accrued vacation pay 1,650 1,617
Accrued pension 4,980 4,628
Accrued bonus 5,139 2,842
Accrued product liability 1,060 1,256
Accrued commissions 2,217 1,193
Other 10,695 7,283
------- -------
$30,142 $22,121
======= =======
- --------------------------------------------------------------------------------
(15) Contingencies
The Company is party to a number of lawsuits arising in the normal course
of its business. The Company does not believe that any pending litigation will
have a material adverse effect on its consolidated financial position.
F-25
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(16) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter in 2003 and 2002 are as
follows:
- --------------------------------------------------------------------------------
2003 Quarter
-------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
Minerals $ 50,177 $ 53,542 $ 55,211 $ 57,116
Environmental 23,489 33,913 38,267 28,740
Transportation 8,797 9,390 10,367 8,995
Intersegment shipping (2,996) (3,592) (4,379) (3,071)
-------- -------- -------- --------
Net sales $ 79,467 $ 93,253 $ 99,466 $ 91,780
======== ======== ======== ========
Minerals $ 9,450 $ 10,497 $ 10,770 $ 11,281
Environmental 8,196 11,674 13,471 10,171
Transportation 978 1,025 1,124 914
-------- -------- -------- --------
Gross profit $ 18,624 $ 23,196 $ 25,365 $ 22,366
======== ======== ======== ========
Minerals $ 4,917 $ 5,882 $ 6,055 $ 6,569
Environmental 2,383 5,321 7,171 2,980
Transportation 376 399 477 295
Corporate (3,346) (3,335) (3,761) (3,446)
-------- -------- -------- --------
Operating profit $ 4,330 $ 8,267 $ 9,942 $ 6,398
======== ======== ======== ========
Income from continuing operations $ 2,930 $ 5,709 $ 6,632 $ 4,644
======== ======== ======== ========
Discontinued operations $ -- $ -- $ -- $ 8,950
======== ======== ======== ========
Net income $ 2,930 $ 5,709 $ 6,632 $ 13,594
======== ======== ======== ========
Basic earnings per share (1) $ 0.10 $ 0.20 $ 0.23 $ 0.48
======== ======== ======== ========
Diluted earnings per share (1) $ 0.10 $ 0.19 $ 0.22 $ 0.45
======== ======== ======== ========
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2002 Quarter
-------------------------------------------
First Second Third Fourth
- --------------------------------------------------------------------------------
Minerals $ 33,690 $ 45,138 $ 46,502 $ 46,213
Environmental 18,493 28,026 33,216 26,191
Transportation 7,384 8,078 8,591 8,456
Intersegment shipping (2,226) (2,707) (3,113) (3,059)
-------- -------- -------- --------
Net sales $ 57,341 $ 78,535 $ 85,196 $ 77,801
======== ======== ======== ========
Minerals $ 5,569 $ 8,427 $ 8,747 $ 9,164
Environmental 6,301 10,022 11,686 8,584
Transportation 783 819 881 885
-------- -------- -------- --------
Gross profit $ 12,653 $ 19,268 $ 21,314 $ 18,633
======== ======== ======== ========
Minerals $ 2,217 $ 4,304 $ 4,386 $ 4,963
Environmental 939 4,582 5,950 2,902
Transportation 226 229 242 270
Corporate (2,759) (2,960) (2,979) (2,854)
-------- -------- -------- --------
Operating profit $ 623 $ 6,155 $ 7,599 $ 5,281
======== ======== ======== ========
Net income $ 532 $ 4,062 $ 4,858 $ 3,516
======== ======== ======== ========
Basic earnings per share (1) $ 0.02 $ 0.14 $ 0.17 $ 0.13
======== ======== ======== ========
Diluted earnings per share (1) $ 0.02 $ 0.13 $ 0.16 $ 0.12
======== ======== ======== ========
- --------------------------------------------------------------------------------
(1) Earnings per share (EPS) for each quarter is computed using the
weighted-average number of shares outstanding during the quarter, while
EPS for the year is computed using the weighted-average number of shares
outstanding during the year. Thus, the sum of the EPS for each of the four
quarters may not equal the EPS for the year.
F-26
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Schedule II
Valuation and Qualifying Accounts
(Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------------
Additions
-----------------------
Charged Balance
Balance at Charged to (credited) at end
beginning costs and to other Other charges of
Year Description of year expenses account add (deduct)(1) year
- ------------------------------------------------------------------------------------------------------------------------
2003 Allowance for doubtful accounts $2,642 $1,082 $ -- $ (269) $3,455
====== ====== ===== ======= ======
2002 Allowance for doubtful accounts $2,127 $1,287 $ -- $ (772) $2,642
====== ====== ===== ======= ======
2001 Allowance for doubtful accounts $2,232 $ 929 $ -- $(1,034) $2,127
====== ====== ===== ======= ======
- ------------------------------------------------------------------------------------------------------------------------
(1) Bad debts written off.
F-27
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 12, 2004
AMCOL INTERNATIONAL CORPORATION
By: /s/ Lawrence E. Washow
-------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ John Hughes March 12, 2004
- --------------------------------------------------
John Hughes
Chairman of the Board and Director
/s/ Lawrence E. Washow March 12, 2004
- --------------------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
and Director
/s/ Gary L. Castagna March 12, 2004
- --------------------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financial Officer;
Treasurer and Chief Accounting Officer
/s/ Arthur Brown March 12, 2004
- --------------------------------------------------
Arthur Brown
Director
/s/ Daniel P. Casey March 12, 2004
- --------------------------------------------------
Daniel P. Casey
Director
/s/ Robert E. Driscoll, III March 12, 2004
- --------------------------------------------------
Robert E. Driscoll, III
Director
/s/ Jay D. Proops March 12, 2004
- --------------------------------------------------
Jay D. Proops
Director
/s/ Clarence O. Redman March 12, 2004
- --------------------------------------------------
Clarence O. Redman
Director
/s/ Dale E. Stahl March 12, 2004
- --------------------------------------------------
Dale E. Stahl
Director
/s/ Audrey L. Weaver March 12, 2004
- --------------------------------------------------
Audrey L. Weaver
Director
/s/ Paul C. Weaver March 12, 2004
- --------------------------------------------------
Paul C. Weaver
Director
58
INDEX TO EXHIBITS
Exhibit
Number
- -------
3.1 Restated Certificate of Incorporation of the Company (5), as amended
(10), as amended (16)
3.2 Bylaws of the Company (10)
4 Article Four of the Company's Restated Certificate of Incorporation (5),
as amended (16)
10.3 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 (23)
21 AMCOL International Corporation Subsidiary Listing
23 KPMG LLP consent
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section
1350
- ----------
(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.
(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.
(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.
(23) 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, 2003.
* Management compensatory plan or arrangement
59