UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________ to _______________________________
Commission file number 0-15661
AMCOL INTERNATIONAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-0724340
- --------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
1500 West Shure Drive, Suite 500, Arlington Heights, Illinois 60004-7803
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(Address of principal executive offices) (Zip Code)
(847) 394-8730
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12(b)-2 of the Exchange Act).
Yes x No ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 14, 2004
- ------------------------------ -----------------------------
(Common stock, $.01 par value) 29,294,893 Shares
AMCOL INTERNATIONAL CORPORATION
INDEX
Page No.
--------
Part I - Financial Information
- ------------------------------
Item 1 Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2004 and December 31, 2003 1
Condensed Consolidated Statements of Operations -
three months ended March 31, 2004 and 2003 2
Condensed Consolidated Statements of Comprehensive
Income - three months ended March 31, 2004 and 2003 2
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 2004 and 2003 3
Notes to Condensed Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 Quantitative and Qualitative Disclosures
About Market Risk 14
Item 4 Controls and Procedures 14
Part II - Other Information
- ---------------------------
Item 2e Company Repurchases of Company Stock 15
Item 6 Exhibits and Reports on Form 8-K 15
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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ASSETS March 31, December 31,
2004 2003
(unaudited) *
- -------------------------------------------------------------------------------------------------------------------------
Current assets:
Cash $ 10,419 $ 13,525
Accounts receivable, net 76,948 60,997
Inventories 51,234 46,182
Prepaid expenses 8,453 5,858
Current deferred tax assets 4,337 3,289
Income taxes receivable 8,097 8,445
-------- --------
Total current assets 159,488 138,296
-------- --------
Investment in and advances to joint ventures 13,166 13,068
-------- --------
Property, plant, equipment, and mineral rights and reserves:
Land and mineral rights 10,682 10,275
Depreciable assets 232,299 226,221
-------- --------
242,981 236,496
Less: accumulated depreciation 154,926 149,500
-------- --------
88,055 86,996
-------- --------
Other assets:
Goodwill 16,128 5,633
Intangible assets, net 811 1,345
Other assets 9,705 8,649
Deferred tax assets 4,550 4,790
-------- --------
31,194 20,417
-------- --------
$291,903 $258,777
======== ========
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LIABILITIES AND STOCKHOLDERS' EQUITY March 31, December 31,
2004 2003
(unaudited) *
- -------------------------------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable $ 1,231 $ 844
Accounts payable 25,130 20,365
Accrued liabilities 26,627 25,162
-------- --------
Total current liabilities 52,988 46,371
-------- --------
Long-term debt 29,712 9,006
-------- --------
Minority interests in subsidiaries 118 116
Other liabilities 19,236 18,386
-------- --------
19,354 18,502
-------- --------
Stockholders' equity:
Common stock 320 320
Additional paid in capital 67,690 67,513
Retained earnings 128,662 125,627
Accumulated other comprehensive income 9,303 8,372
-------- --------
205,975 201,832
Less:
Treasury stock 16,126 16,934
-------- --------
189,849 184,898
-------- --------
$291,903 $258,777
======== ========
- -------------------------------------------------------------------------------------------------------------------------
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share and per share amounts)
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Three Months Ended
March 31,
------------------------------------
2004 2003
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 101,967 $ 79,467
Cost of sales 77,431 60,843
------------ ------------
Gross profit 24,536 18,624
General, selling and administrative expenses 17,296 14,294
------------ ------------
Operating profit 7,240 4,330
------------ ------------
Other income (expense):
Interest expense, net (79) (80)
Other, net 43 32
------------ ------------
(36) (48)
------------ ------------
Income before income taxes and equity 7,204 4,282
in income of joint ventures
Income tax expense 2,269 1,455
------------ ------------
Income before equity in income of 4,935 2,827
joint ventures
Income from joint ventures 148 103
------------ ------------
Net income $ 5,083 $ 2,930
============ ============
Weighted average common shares outstanding 29,092,656 27,994,263
============ ============
Weighted average common and common equivalent shares outstanding 30,986,319 29,746,227
============ ============
Basic earnings per share $ 0.17 $ 0.10
============ ============
Diluted earnings per share $ 0.16 $ 0.10
============ ============
Dividends declared per share $ 0.070 $ 0.030
============ ============
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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------
2004 2003
- --------------------------------------------------------------------------------
Net income $ 5,083 $ 2,930
Other comprehensive income (loss):
Reclassification of prior service cost (410) --
Foreign currency translation adjustment 1,341 (1,546)
------- -------
Comprehensive income $ 6,014 $ 1,384
======= =======
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended
March 31,
----------------------------
2004 2003
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Cash flow from operating activities:
Net income $ 5,083 $ 2,930
Adjustments to reconcile from net income to net cash
used in operating activities:
Depreciation, depletion, and amortization 5,091 4,492
Changes in assets and liabilities, net of effects of acquisitions:
Increase in current assets (16,380) (8,464)
Increase in noncurrent assets (1,408) (863)
Increase (decrease) in current liabilities 2,783 (2,833)
Increase (decrease) in noncurrent liabilities 824 (139)
Other 799 136
-------- --------
Net cash used in operating activities (3,208) (4,741)
-------- --------
Cash flow from investing activities:
Acquisition of land, mineral rights, and depreciable assets (3,242) (3,489)
Acquisitions, net of cash (13,221) --
Other 770 115
-------- --------
Net cash used in investing activities (15,693) (3,374)
-------- --------
Cash flow from financing activities:
Net change in outstanding debt 17,138 4,171
Proceeds from sales of treasury stock 504 528
Purchases of treasury stock (196) (315)
Dividends paid (2,047) (841)
-------- --------
Net cash provided by financing activities 15,399 3,543
-------- --------
Effect of foreign currency rate changes on cash 396 (857)
-------- --------
Net decrease in cash and cash equivalents (3,106) (5,429)
-------- --------
Cash and cash equivalents at beginning of period 13,525 15,597
-------- --------
Cash and cash equivalents at end of period $ 10,419 $ 10,168
======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 85 $ 114
======== ========
Income taxes $ 1,056 $ 2,180
======== ========
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
Note 1: BASIS OF PRESENTATION
The financial information included herein has been prepared by management
and, other than the condensed consolidated balance sheet as of December 31,
2003, is unaudited. The condensed consolidated balance sheet as of December 31,
2003 has been derived from, but does not include all of the disclosures
contained in, the audited consolidated financial statements for the year ended
December 31, 2003. The information furnished herein includes all adjustments
that are, in the opinion of management, necessary for a fair statement of the
results of operations and cash flows for the interim periods ended March 31,
2004 and 2003, and the financial position of the Company as of March 31, 2004,
and all such adjustments are of a normal recurring nature. Management recommends
the accompanying condensed consolidated financial information be read in
conjunction with the consolidated financial statements and related notes
included in the Company's 2003 Annual Report on Form 10-K, which accompanies the
2003 Corporate Report.
The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full years.
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"), which addresses financial accounting
and reporting for legal obligations associated with the retirement of tangible
long-lived assets and the related asset retirement costs. SFAS 143 requires that
the fair value of a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable estimate of fair value can
be made. The fair value of the liability is added to the carrying amount of the
associated asset and this additional carrying amount is depreciated over the
life of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation is adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying the
obligation. The Company adopted SFAS No. 143 as of January 1, 2003, and
determined that no material adjustments were required to the amounts previously
recorded. At March 31, 2004 the Company's recorded reclamation obligation was
$5,382. During the quarter ended March 31, 2004, the obligation was reduced by
$47 due to payments made in relation to normal mining activities offset by
accretion and recognition of additional obligations resulting from normal mining
activities.
Note 2: INVENTORIES
Inventories at March 31, 2004 have been valued using the same methods as
at December 31, 2003. The composition of inventories at March 31, 2004 and
December 31, 2003, was as follows:
- --------------------------------------------------------------------------------
March 31, December 31,
2004 2003
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Advance mining $ 2,423 $ 2,605
Crude stockpile inventories 12,865 14,410
In-process inventories 21,594 14,190
Other raw material, container, and
supplies inventories 14,352 14,977
------- -------
$51,234 $46,182
======= =======
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4
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
(Continued)
Note 3: EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income by the
weighted average number of common shares outstanding during each period. Diluted
earnings per share were computed by dividing net income by the weighted average
common shares outstanding after consideration of the dilutive effect of stock
options outstanding during each period. As of March 31, 2004, the cost of all
the outstanding stock options were below the current market price.
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------
2004 2003
- --------------------------------------------------------------------------------
Weighted average of common shares outstanding 29,092,656 27,994,263
Dilutive impact of stock options 1,893,663 1,751,964
---------- ----------
Weighted average of common and common equivalent 30,986,319 29,746,227
shares for the period
========== ==========
Common shares outstanding 29,281,608 28,100,045
========== ==========
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Note 4: BUSINESS SEGMENT INFORMATION
The Company operates in two major industry segments: minerals and
environmental. The Company also operates a transportation business. The minerals
segment mines, processes and distributes clays and products with similar
applications to various industrial and consumer markets. The environmental
segment processes and distributes clays and products with similar applications
for use as a moisture barrier in commercial construction, landfill liners and in
a variety of other industrial and commercial applications. The transportation
segment includes a long-haul trucking business and a freight brokerage business,
which provide services to both the Company's plants and outside customers.
The Company identifies segments based on management responsibility and the
nature of the business activities of each component of the Company. Intersegment
sales are insignificant, other than intersegment shipping, which is disclosed in
the following table. The Company measures segment performance based on operating
profit. Operating profit is defined as sales less cost of sales and general,
selling and administrative expenses related to a segment's operations. The costs
deducted to arrive at operating profit do not include interest or income taxes.
Segment assets are those assets used in the Company's operations in that
segment. Corporate assets include cash and cash equivalents, corporate leasehold
improvements, the nanocomposite plant investment and other miscellaneous
equipment.
5
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
(Continued)
The following summaries set forth certain financial information by
business segment for the three months ended March 31, 2004 and 2003 and as of
March 31, 2004 and December 31, 2003.
- ----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
---------------------------------
2004 2003
- ----------------------------------------------------------------------------------------------------------------------------
Business Segment:
Revenues:
Minerals $ 64,055 $ 50,177
Environmental 31,767 23,489
Transportation 9,332 8,797
Intersegment shipping (3,187) (2,996)
-------------- -------------
Total $ 101,967 $ 79,467
============== =============
Operating profit (loss):
Minerals $ 7,435 $ 4,917
Environmental 3,079 2,383
Transportation 386 376
Corporate (3,660) (3,346)
-------------- -------------
Total $ 7,240 $ 4,330
============== =============
March 31, 2004 Dec. 31, 2003
============== =============
Assets:
Minerals $ 153,909 $ 144,973
Environmental 106,867 82,453
Transportation 2,604 1,891
Corporate 28,523 29,460
-------------- -------------
Total $ 291,903 $ 258,777
============== =============
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At March 31, 2004 and December 31, 2003, goodwill for the minerals segment
was $5,096 and $5,394; and for the environmental segment was $11,032 and $239.
The purchase price allocation of acquisitions made within the past 12 months
have not been finalized as management is in the process of determining the fair
values of the acquired assets and liabilities.
Note 5: STOCK OPTION PLANS
Prior to 2003, the Company accounted for its fixed plan stock options
under the recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost was reflected in net
income prior to 2003, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant. Effective January 1, 2003, the Company adopted the fair value recognition
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and had
elected to apply these provisions prospectively, in accordance with SFAS No.
6
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
(Continued)
148, Accounting for Stock-Based Compensation-amendment to SFAS 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 Statement No. 123. Results for prior years have not been
restated.
The following table illustrates the effect on net income and earnings per
share if the fair value based method had been applied to all outstanding and
unvested awards in each period.
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
------------------------------
2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Net income, as reported $ 5,083 $ 2,930
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects 332 66
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects (406) (270)
------- -------
Pro forma net income $ 5,009 $ 2,726
======= =======
Earnings per share:
Basic - as reported $ 0.17 $ 0.10
Basic - pro forma $ 0.17 $ 0.10
Diluted - as reported $ 0.16 $ 0.10
Diluted - pro forma $ 0.16 $ 0.09
- -----------------------------------------------------------------------------------------------------------------------------
Note 6: COMPONENTS OF PENSION AND OTHER RETIREMENT BENEFIT COST
- -----------------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31,
----------------------------
2004 2003
- -----------------------------------------------------------------------------------------------------------------------------
Service cost $ 362 $ 332
Interest cost 457 438
Expected return on plan assets (484) (394)
Amortization of transition (asset) / obligation (34) (34)
Amortization of prior service cost 7 7
Amortization of net (gain) loss -- 17
----- -----
Net periodic benefit cost $ 308 $ 366
===== =====
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7
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share amounts)
(Continued)
Employer Contributions
The Company previously disclosed in its financial statements for the year
ended December 31, 2003, that it expected to contribute $1 million to its
pension plan in 2004. As of March 31, 2004, that full contribution has been
made.
Note 7: ACQUISITIONS
The Company acquired all of the outstanding stock in two individually
insignificant acquisitions during the period ended March 31, 2004. Net cash paid
and notes payable were $13,221. Goodwill was $10,620. These acquisitions,
individually and in aggregate, did not materially affect the Company's operating
results or financial position in the periods presented. The purchase price
allocation of acquisitions made within the past 12 months have not been
finalized as management is in the process of determining the fair values of the
acquired assets and liabilities assumed.
8
Item 2: AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is a discussion and analysis that describes certain factors that
have affected, and may continue to affect, our financial position and operating
results. This discussion should be read with the accompanying condensed
consolidated financial statements.
Results of operations (in millions):
Net sales: 2004 2003 % Change
---- ---- --------
$ 102.0 $ 79.5 28%
Our minerals segment represented 63% of net sales reported in the quarter
and 62% of the growth over the prior year period. Environmental segment sales
represented 31% of the total and 37% of the increase over the first quarter of
2003. Transportation segment revenues represented 6% of net sales, after
eliminating intersegment sales, and 1% of the increase over the first quarter of
2003. Net sales from businesses acquired since the second quarter of 2003
accounted for approximately 23% of the growth over the prior year period, while
favorable foreign currency changes accounted for approximately 17% of the
increase in net sales.
Gross profit: 2004 2003 % Change
---- ---- --------
$ 24.5 $ 18.6 32%
Gross profit increased as a result of the higher net sales in the current
period. Gross margin improved to 24.1% for the first quarter of 2004 from 23.4%
for the prior year period. The 70 basis point improvement was attributed to
higher sales prices and lower production costs in certain minerals segment
businesses.
General, Selling & Administration expenses (Stock based compensation costs
included):
2004 2003 % Change
---- ---- --------
$ 17.3 $ 14.3 21%
Higher compensation and benefit costs accounted for the majority of the
increase over the 2003 first quarter. Operating expenses associated with
acquired businesses also contributed to the increase over the prior year period.
As described in Note 5 to the condensed consolidated financial statements,
stock-based compensation costs are included in operating expenses. Research and
development expenses were approximately $1.3 million for both reporting periods.
Operating profit: 2004 2003 % Change
---- ---- --------
$ 7.2 $ 4.3 67%
Operating profit improved in the first quarter of 2004 as a result of
higher sales and gross profit. Acquisitions and favorable foreign currency
exchange rates accounted for 17% and 16%, respectively, of the increase in
operating profit over the 2003 first quarter. Operating margin was 7.1% in first
quarter
9
of 2004 compared with 5.4% in the prior year period. The margin improvement over
the first quarter of 2003 was attributed to higher growth in gross profit
compared with growth in G,S&A.
Income taxes: 2004 2003 % Change
---- ---- --------
$ 2.3 $ 1.5 53%
Income taxes increased due to the improvement in operating profit in the
current year period. Our effective income tax rate was 31.5% for the first
quarter of 2004 compared with 34.0% for the prior year period. Businesses with
lower statutory income tax rates represented a greater proportion of operating
profit in the current year period.
Net income: 2004 2003 % Change
---- ---- --------
$ 5.1 $ 2.9 76%
Net income improved commensurate with the increase in operating profit
over the 2003 first quarter. Net margin was 5.0% in the current period compared
with 3.7% for the first quarter of 2003. The increase followed the increase in
operating profit and the lower effective income tax rate reported in the 2004
period.
Diluted earnings per share: 2004 2003 % Change
---- ---- --------
$ 0.16 $ 0.10 60%
Earnings from acquired businesses, favorable foreign currency exchange
rates and a lower effective income tax rate each accounted for $0.01 per share
of the increase over the first quarter of 2003. Weighted average common and
common equivalent shares outstanding increased by 4% over the 2003 quarter,
which depressed earnings by $0.01 per share in the 2004 period. Stock option
exercises by employees throughout 2003 resulted in higher weighted average
shares outstanding during the first quarter of the current reporting period. The
remaining $0.04 per share improvement over 2003 was attributed to organic
growth.
Following is a review of operating results for each of our segments:
Segment Analysis
- ------------------------------------------------------------------------------------------------------------------------------------
Minerals Three Months Ended March 31,
-------------------------------------------------------------------------------
2004 2003 2004 vs. 2003
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Product sales $59,117 92.3% $46,061 91.8%
Shipping revenue 4,938 7.7% 4,116 8.2%
------- ----- ------- -----
Net sales 64,055 100.0% 50,177 100.0% 13,878 27.7%
------- ----- ------- -----
Cost of sales - product 46,514 72.6% 36,611 73.0%
Cost of sales - shipping 4,938 7.7% 4,116 8.2%
------- ----- ------- -----
Cost of sales 51,452 80.3% 40,727 81.2%
------- ----- ------- -----
Gross profit 12,603 19.7% 9,450 18.8% 3,153 33.4%
General, selling and
administrative expenses 5,168 8.1% 4,533 9.0% 635 14.0%
------- ----- ------- ----- ------
Operating profit 7,435 11.6% 4,917 9.8% 2,518 51.2%
- ------------------------------------------------------------------------------------------------------------------------------------
10
Acquired businesses and favorable foreign currency exchange rates
accounted for 7% and 16%, respectively, of the increase in net sales. Organic
sales growth was primarily attributed to the metalcasting business. We
experienced higher shipments in all regions. Pet products sales were comparable
with those of the first quarter of 2003. Specialty minerals experienced sales
increases in the detergent, health and beauty, and the oil well drilling
business units.
Higher sales contributed to the increase in gross profit over the first
quarter of 2003. Gross margin expanded by 90 basis points aided by lower unit
manufacturing costs in the metalcasting and specialty minerals businesses. Raw
material and transportation costs were comparable to the prior year period.
General, selling and administrative expenses increased primarily due to
higher compensation and benefit costs. Higher foreign currency exchange rates
also caused the increase over the prior year quarter.
Operating profit improved over the first quarter of 2003 due to the
increase in sales and gross profit. Operating margin increased by 180 basis
points due to the expansion in gross margin and a lower rate of increase in
general, selling and administrative expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
Environmental Three Months Ended March 31,
------------------------------------------------------------------------------
2004 2003 2004 vs. 2003
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Product sales $30,067 94.6% $21,953 93.5%
Shipping revenue 1,700 5.4% 1,536 6.5%
------- ----- ------- -----
Net sales 31,767 100.0% 23,489 100.0% 8,278 35.2%
------- ----- ------- -----
Cost of sales - product 19,171 60.3% 13,757 58.6%
Cost of sales - shipping 1,700 5.4% 1,536 6.5%
------- ----- ------- -----
Cost of sales 20,871 65.7% 15,293 65.1%
------- ----- ------- -----
Gross profit 10,896 34.3% 8,196 34.9% 2,700 32.9%
General, selling and
administrative expenses 7,817 24.6% 5,813 24.7% 2,004 34.5%
------- ----- ------- ----- -----
Operating profit 3,079 9.7% 2,383 10.1% 696 29.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Approximately 51% of the increase in net sales was attributed to
businesses acquired since the second quarter of 2003. Favorable currency
exchange rates accounted for another 21% of the increase. Lining technologies
product sales grew primarily due to a European lining business acquired as of
January 2004. Water treatment revenues grew as a result of an acquisition of an
oilfield service business completed in January 2004. Building materials revenues
improved over the first quarter of 2003 due to growth in European markets.
Gross profit grew with the improvement in sales over the first quarter of
2003, however, gross margin declined by 60 basis points. Lining technologies
gross margin was depressed by higher unit production costs associated with the
European operation acquired in the first quarter of 2004. Higher unit production
costs at the domestic building materials business unit also caused the decline
in gross margin.
General, selling and administrative expenses increased primarily due to
higher personnel levels and compensation costs. The personnel increase was
associated with acquisitions completed since the second quarter of 2003. Higher
foreign currency exchange rates also contributed to the increase over 2003.
11
Operating margin declined by 40 basis points. This was caused primarily by
the decline in gross margin described above.
- ------------------------------------------------------------------------------------------------------------------------------------
Transportation Three Months Ended March 31,
--------------------------------------------------------------------------
2004 2003 2004 vs.2003
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $9,332 100.0% $8,797 100.0% $535 6.1%
Cost of sales 8,295 88.9% 7,819 88.9%
------ ----- ------ -----
Gross profit 1,037 11.1% 978 11.1% 59 6.0%
General, selling and
administrative expenses 651 7.0% 602 6.8% 49 8.1%
------ ----- ------ ----- ----
Operating profit 386 4.1% 376 4.3% 10 2.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales improved due to higher traffic levels. Higher intersegment
revenues accounted for the majority of the increase. General, selling and
administrative expenses increased due to higher personnel levels.
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Three Months Ended March 31,
----------------------------------------------------------------
2004 2003 2004 vs. 2003
- ------------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
Intersegment shipping sales $(3,187) $(2,996)
Intersegment shipping costs (3,187) (2,996)
------- -------
Gross profit -- --
Corporate general, selling
and administrative expenses 2,746 2,318 428 18.5%
Nanocomposite business
development expenses 914 1,028 (114) -11.1%
------- ----
Operating loss (3,660) (3,346) (314) 9.4%
- ------------------------------------------------------------------------------------------------------------------------------------
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 expenses increased primarily due to higher compensation and
benefit costs. Stock-based compensation, which has been reflected as an expense
since January 2003, was the largest component of the increase.
Nanocomposite expenses declined from the first quarter of 2003 due to
lower spending on activities that are now funded by our alliance partners. The
business has alliance agreements with Mitsubishi Gas Chemical Company and Poly
One Corporation that focus on developing certain markets for nanocomposites.
Revenue from these alliances was immaterial in the first quarter of 2004.
12
Liquidity and capital resources (in millions):
- --------------------------------------------------------------------------------
Cash Flows Three Months Ended March 31,
----------------------------
2004 2003
- --------------------------------------------------------------------------------
Net cash used in operating activities $ (3.2) $ (4.7)
Net cash used in investing activities $ (15.7) $ (3.4)
Net cash provided by financing activities $ 15.4 $ 3.5
- --------------------------------------------------------------------------------
Cash flows used in operating activities in the first quarter of 2004
improved over the prior year as a result of higher net income. Historically,
cash flows from operations have increased over the course of the fiscal year and
we anticipate this pattern to continue in 2004.
Cash flows used in investing activities increased primarily due to
acquisitions completed in the first quarter of 2004. We acquired the shares of
Lafayette Well Testing, Inc. on January 7, 2004, and Linteco Geotechnische
Systeme GmbH on March 5, 2004. Under the terms of the Linteco purchase agreement
we reported the operating results of the business from January 1, 2004. Capital
expenditures totaled $3.2 million in the first quarter of 2004 compared with
$3.5 million in the prior year period. Average capital expenditures have been
$16 million over the last two years. We anticipate the 2004 capital expenditures
to be in the range of $16 million to $19 million.
Cash flows provided by financing activities increased due to debt funding
for acquisitions completed in the first quarter of 2004. We used our revolving
credit facility to finance the acquisitions. Additionally, we assumed
approximately $4.1 million of funded debt as part of the consideration for the
Linteco acquisition. Dividends paid in the first quarter of 2004 were $2.0
million compared with $0.8 million in the prior year period. We increased our
quarterly dividend to $0.07 from $0.03 per share in last year's first quarter.
- --------------------------------------------------------------------------------
Financial Position Three Months Ended
------------------------------
March 31, December 31,
------------------------------
2004 2003
- --------------------------------------------------------------------------------
Working capital $ 106.5 $ 91.9
Intangible assets $ 16.9 $ 7.0
Total assets $ 291.9 $ 258.8
Long-term debt $ 29.7 $ 9.0
Other long-term obligations $ 19.4 $ 18.5
Stockholder's equity $ 189.8 $ 184.9
- --------------------------------------------------------------------------------
Working capital at March 31, 2004, increased from December 31, 2003,
primarily due to the acquisitions completed in the first quarter of 2004 and
strong sales reported in the period. The current ratio at March 31, 2004, and
December 31, 2003, was 3.0-to-1.
Intangible assets primarily represent goodwill associated with
acquisitions. The amount increased from December 31, 2003 as a result of
preparing the purchase price allocation for acquisitions closed in the first
quarter. The purchase price allocations are subject to change since certain
assets and liabilities assumed with the acquisitions require further analysis to
determine their fair values. Consequently, intangible asset values may change as
well.
13
Long-term debt increased to 14.1% of total capitalization at March 31,
2004, compared with 5.1% at December 31, 2003. The increase in debt levels was
principally attributed to funding of acquisitions completed in the first
quarter. We have a $100 million revolving credit facility with a consortium of
U.S. banks that matures on October 31, 2006. At March 31, 2004, we had
approximately $80 million of borrowing capacity remaining from the credit
facility. The credit facility stipulates that we must comply with a number of
financial covenants. We are in compliance with those covenants at March 31,
2004.
Other long-term obligations primarily represent liabilities associated
with our qualified and supplemental retirement plans and deferred income taxes.
We believe future cash flows from operations combined with borrowing
capacity from our revolving credit facility will be adequate to fund capital
expenditures and other investments approved by the board of directors.
Since the mid 1980's, the Company and/or its subsidiaries have been named
as one of a number of defendants in product liability lawsuits relating to the
minor free-silica content within the Company's bentonite products used in the
metalcasting industry. The plaintiffs in these lawsuits are primarily employees
of the Company's foundry customers. To date, the Company has not incurred
significant costs in defending these matters. The Company believes it has
adequate insurance coverage and does not believe the litigation will have a
material adverse impact on the financial condition, liquidity or results of the
operation of the Company.
Item 3: Quantitative and Qualitative Disclosure About Market Risk
There have been no material changes in the Company's market risk during
the three months ended March 31, 2004. See disclosures as of December 31, 2003
in the Company's Annual Report on Form 10-K, Item 7A.
Item 4: Controls and Procedures
Within the 90-day period prior to the filing of the report, an evaluation
was performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and the Chief Financial
Officer, of the effectiveness of the Company's disclosure controls and
procedures. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules.
There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect those controls subsequent to
the date the evaluation was carried out.
14
PART II - OTHER INFORMATION
Item 2e: Company Repurchases of Company Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Total Number of Maximum Value of
Shares Repurchased Average Shares that May Yet Be
as Part of the Stock Price Paid Repurchased Under the
Repurchase Program* Per Share Program
- ------------------------------------------------------------------------------------------------------------------------------------
January 1, 2004 - January 31, 2004 $ -- $3,704,133
February 1, 2004 - February 29, 2004 -- $ -- $3,704,133
March 1, 2004 - March 31, 2004 12,400 $ 15.83 $3,507,839
------- ------------- ----------
Total 12,400 $ 15.83 $3,507,839
======= ============= ==========
- ------------------------------------------------------------------------------------------------------------------------------------
* On May 16, 2002, the Board of Directors authorized a program to repurchase
up to $10 million of the Company's outstanding stock. No other repurchase
programs expired or existed during the first quarter ended March 31, 2004.
Item 6: Exhibits and Reports on Form 8-K
(a) See Index to Exhibits immediately following the signature page.
(b) A current report on Form 8-K was filed on April 19, 2004, furnishing
a press release disclosing the Company's operating results for the
first quarter ended March 31, 2004.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMCOL INTERNATIONAL CORPORATION
Date: May 7, 2004 /s/ Lawrence E. Washow
- ------------------------ ------------------------------------------
Lawrence E. Washow
President and Chief Executive Officer
Date: May 7, 2004 /s/ Gary L. Castagna
- ------------------------ ------------------------------------------
Gary L. Castagna
Senior Vice President and Chief Financial
Officer and Principal Accounting Officer
CERTIFICATIONS
05/07/04 Lawrence E. Washow
05/07/04 Gary L. Castagna
16
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
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
17