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 September 30, 2002
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 1-10219
VULCAN INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 31-0810265
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
300 Delaware Avenue, Suite 1704, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
(302) 427-5804
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding shares of no par value common stock at September 30, 2002:
1,081,459 shares
VULCAN INTERNATIONAL CORPORATION
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2
Condensed Consolidated Statements of Cash Flows 3
Schedule Supporting Net Income Per Common
Share and Dividends Per Common Share 4
Notes to Condensed Consolidated Financial
Statements 5-10
Independent Accountants' Report 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-13
Item 3. Quantitative and Qualitative Disclosures
about Market Risks 13
Item 4. Controls and Procedures 14
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 15-16
Item 6. Exhibits and Reports on Form 8-K 17
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2002 2001
UNAUDITED
-ASSETS-
CURRENT ASSETS:
Cash $ 1,797,728 2,493,733
Marketable securities (at fair market value) 25,940,691 39,981,369
Accounts receivable 2,117,617 1,428,693
Inventories 476,459 356,290
Prepaid expense and tax 74,124 73,610
---------- ----------
TOTAL CURRENT ASSETS 30,406,619 44,333,695
---------- ----------
PROPERTY, PLANT AND EQUIPMENT-at cost 11,757,245 11,688,951
Less-Accumulated depreciation and depletion 9,565,430 9,571,475
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT 2,191,815 2,117,476
---------- ----------
OTHER ASSETS:
Investment in joint venture - 69,010
Marketable securities (at fair market value) 27,793,825 37,040,858
Deferred charges and other assets 5,663,465 5,536,448
---------- ----------
TOTAL OTHER ASSETS 33,457,290 42,646,316
---------- ----------
TOTAL ASSETS $66,055,724 89,097,487
========== ==========
-LIABILITIES AND SHAREHOLDERS' EQUITY-
CURRENT LIABILITIES:
Deferred income tax $ 5,727,383 10,480,454
Other 6,649,438 6,552,174
---------- ----------
TOTAL CURRENT LIABILITIES 12,376,821 17,032,628
---------- ----------
OTHER LIABILITIES:
Deferred income tax 9,629,726 12,791,949
Commitments and contingencies - -
Joint venture and minority
interest in partnership 137,202 15,251
Other liabilities 37,470 37,470
---------- ----------
TOTAL OTHER LIABILITIES 9,804,398 12,844,670
---------- ----------
SHAREHOLDERS' EQUITY:
Capital stock 249,939 249,939
Additional paid-in capital 8,205,825 8,191,065
Retained earnings 27,394,167 26,562,597
Accumulated other comprehensive income 31,227,578 46,599,325
---------- ----------
67,077,509 81,602,926
Less-Common stock in treasury-at cost 23,203,004 22,382,737
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 43,874,505 59,220,189
---------- ----------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $66,055,724 89,097,487
========== ==========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-1-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Nine months ended Three months ended
September 30, September 30,
2002 2001 2002 2001
REVENUES:
Net sales $6,873,944 6,241,465 2,293,461 1,859,131
Dividends and interest 1,723,113 1,637,021 577,080 552,419
--------- --------- --------- ---------
TOTAL REVENUES 8,597,057 7,878,486 2,870,541 2,411,550
--------- --------- --------- ---------
COST AND EXPENSES:
Cost of sales 6,311,195 6,022,166 2,150,874 1,814,593
General and
administrative 1,423,529 1,458,904 478,846 483,173
Interest expense 131,872 233,798 38,858 63,580
--------- --------- --------- ---------
TOTAL COST AND
EXPENSES 7,866,596 7,714,868 2,668,578 2,361,346
--------- --------- --------- ---------
EQUITY IN JOINT
VENTURE INCOME AND
MINORITY INTEREST 209,039 84,524 69,047 350
--------- --------- --------- ---------
INCOME BEFORE
GAIN ON SALE OF ASSETS 939,500 248,142 271,010 50,554
NET GAIN ON SALE OF
PROPERTY, EQUIPMENT
AND SECURITIES 784,402 2,185,289 216,012 167,389
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES 1,723,902 2,433,431 487,022 217,943
INCOME TAX PROVISION
(BENEFIT) 235,164 438,139 74,220 (56,646)
--------- --------- --------- ---------
NET INCOME $1,488,738 1,995,292 412,802 274,589
========= ========= ========= =========
NET INCOME PER SHARE $ 1.36 1.77 .38 .25
========= ========= ========= =========
DIVIDENDS PER
COMMON SHARE $ .60 .60 .20 .20
========= ========= ========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-2-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended
UNAUDITED
September 30, September 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 6,191,072 7,351,917
Cash paid to suppliers and employees (7,867,171) (6,529,945)
Dividends received 1,723,113 1,637,021
Interest paid (15,298) (51,267)
Income taxes paid (205,000) (480,000)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES (173,284) 1,927,726
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property, equipment and
marketable securities 796,734 2,258,544
Purchase of property and equipment (347,125) (58,735)
Cash distribution from joint venture 400,000 100,000
Collection on notes receivable 90,346 85,054
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES 939,955 2,384,863
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
credit agreements - (1,135,000)
Sale of treasury shares 19,885 -
Purchase of common shares (825,393) (2,103,881)
Cash dividends paid (657,168) (678,832)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES (1,462,676) (3,917,713)
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (696,005) 394,876
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,493,733 1,008,649
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 1,797,728 1,403,525
========= =========
RECONCILIATION OF NET INCOME TO
NET CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 1,488,738 1,995,292
Adjustments-
Depreciation and amortization 258,579 290,017
Deferred income taxes 3,484 36,054
Equity in joint venture income and
minority interest (209,039) (84,524)
Net gain on sale of property and
marketable securities (784,402) (2,185,289)
(Increase) decrease in accounts
receivable (682,872) 1,110,452
(Increase) decrease in inventories (120,169) 368,176
Increase (decrease) in accounts payable,
accrued expenses and other assets (127,603) 397,548
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES $ (173,284) 1,927,726
========= =========
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-3-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
SCHEDULE SUPPORTING NET INCOME PER COMMON SHARE
AND DIVIDENDS PER COMMON SHARE
UNAUDITED
EXHIBIT 1
Nine months ended Three months ended
September 30, September 30,
2002 2001 2002 2001
a) Net income $1,488,738 1,995,292 412,802 274,589
========= ========= ========= =========
b) Cash dividends on
common shares 657,168 678,832 216,325 224,943
========= ========= ========= =========
Weighted Average
Shares:
c) Common shares
issued 1,999,512 1,999,512 1,999,512 1,999,512
d) Common
treasury shares 902,375 870,513 911,524 882,061
--------- --------- --------- ---------
e) Common shares
outstanding 1,097,137 1,128,999 1,087,988 1,117,451
========= ========= ========= =========
f) Net income per
common share $ 1.36 1.77 .38 .25
g) Dividends per
common share $ .60 .60 .20 .20
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
-4-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
On March 1, 1990 the United States of America filed a Complaint against the
Company and others in the United States District Court for the District
of Massachusetts claiming that the Company was a potentially responsible
party with respect to the Re-Solve, Inc. Superfund Site in North Dartmouth,
Massachusetts seeking to recover response costs incurred and to be incurred
in the future in connection with this Site.
Although the Company had engaged counsel to represent it in that action,
the Company was first informed on March 28, 2001 that the Court had entered,
pursuant to prior rulings, an unopposed "Final Judgment" against the Company
on September 22, 1999. The "Final Judgment" awarded damages against the
Company in favor of the United States in the amount of $3,465,438 for
unreimbursed response costs and accrued interest, plus any additional past
unreimbursed response costs, interest and certain future costs the United
States incurs at the site. The United States filed a notice of lien in
certain jurisdictions on real property of the Company and its subsidiary
Vulcan Corporation in the dollar amount of the judgment, plus interest.
In 1999 the Company recorded an estimated liability of $2,981,000, net of
$1,734,000 tax, for the judgment, accrued interest for the past costs and
a discounted present value for estimated future costs in connection with
the site. This estimated liability was calculated based on the "Final
Judgment" and using other information provided by the U.S. EPA. The
Company expensed $151,000 and $140,000, after tax, for the years ended
December 31, 2001 and 2000 and $77,000 and $26,000, after tax, for the
nine months and three months ended September 30, 2002, for accrued interest
and amortization of estimated future costs related to this matter.
The liability for future costs is a significant estimate of the future
costs and it is subject to change as actual costs are incurred and reported
by the Environmental Protection Agency.
The Company is presently continuing an investigation into this matter and
intends to vigorously pursue all available legal remedies to set aside all
orders and liens relating to the asserted liability and to defend itself
against the underlying allegations. Counsel for the Company is also
vigorously pursuing settlement negotiations with counsel for the United
States. To the extent that the Company is able to settle this liability,
or to obtain judicial relief, for an amount less than it has accrued, the
difference will be recorded as income in the year the obligation is settled.
The Company was advised by the U.S. Environmental Protection Agency several
years ago that it was one of at least 122 large generator potentially
responsible parties ("PRP's") with regard to remediation of the Union Chemical
Company, Inc. Site, South Hope, Maine, where the potential joint and several
liability was in the range of $15 million. The Company, along with many other
PRP's, entered into a consent agreement with U.S. EPA to remediate the Site,
and the Company is now a party to a Remedial Design/Remedial Action Trust
-5-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
(Continued)
Agreement for the purpose of undertaking clean-up responsibilities at the Site.
Most of the remedial work has now been completed. In 2000, PRP's estimated
that additional funds of approximately $1 million would be required to complete
remediation of the Site. The Registrant's estimated share of that amount was
approximately $5,000 and was paid in 2000. If the projected cost of the
remaining remediation tasks remains at approximately $1 million, the Registrant
will not have additional payments. There may be other potential clean-up
liabilities at other sites of which the Company has no specific knowledge.
The Company has an interest in a partnership which owns certain real estate.
On August 13, 1999 a Complaint for money damages, in excess of $25,000, based
upon breach of fiduciary duty was filed by the other partner in the Court of
Common Pleas in Hamilton County, Ohio. Essentially, the plaintiff is seeking
an adjustment of the capital account balances which would result in a higher
distribution of cash flow. On March 27, 2001, the plaintiff threatened to
file an Amended Complaint that alleges damages of $1,062,000 and costs, plus
punitive damages of $2,000,000 on various grounds. The Registrant believes
that the suit is without merit and has been defending itself vigorously
against the issues raised.
CCBA appealed a real estate tax assessment from 1999 that had increased the
annual real estate tax by approximately $96,000. The local school board has
appealed the revision and reduced its initial appraised value of the property.
During 2001, the partnership received a $96,000 refund of the additional tax
paid in 1999. CCBA has recorded a liability of approximately $119,000
related to this issue based on the revised value asserted by the local school
board. If CCBA is successful, this liability will be recognized as income.
The Company is involved in other litigation matters and claims which are
normal in the course of operations. Management believes that the resolution
of these matters will not have a material effect on the Company's business
or financial condition.
The accompanying condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to reflect a
fair presentation of financial position, results of operations and cash flows
for the interim periods. All such adjustments are of a normal recurring
nature.
There were no securities of the Company sold by the Company during the
nine months ended September 30, 2002, that were not registered under the
Securities Act of 1933, in reliance upon an exemption from registration
provided by Section 4(2) of the Act.
-6-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
(Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVENTORIES
SEPTEMBER 30, DECEMBER 31,
2002 2001
UNAUDITED
Inventories consisted of:
Finished goods $146,459 142,846
Work in process 90,174 64,853
Raw materials 239,826 148,591
------- -------
Total inventories $476,459 356,290
======= =======
COMPREHENSIVE INCOME
During the nine months and three months ended September 30, 2002 and 2001
total other comprehensive income (loss) was as follows:
Nine months ended Three months ended
September 30, September 30,
2002 2001 2002 2001
c>
Net income $ 1,488,738 1,995,292 412,802 274,589
Other comprehensive
income, net of tax:
Unrealized gain (loss)
on marketable
securities (15,313,434)(11,749,849) (9,753,985) (5,356,728)
Less: reclassification
adjustment for gains
included in net income (58,313) (899,173) - (74,854)
---------- ---------- --------- ---------
Total comprehensive
income (loss) $(13,883,009)(10,653,730) (9,341,183) (5,156,993)
========== ========== ========= =========
-7-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
(Continued)
COMPREHENSIVE INCOME (continued)
Accumulated comprehensive income consisted of unrealized holding gains on
securities available for sale of $31,227,578 at September 30, 2002 and
$46,599,325 at December 31, 2001.
STOCK OPTIONS
In May 2002, the Company's Board of Directors adopted a resolution amending
the Company's stock option plan to provide that the maximum time with which
all currently outstanding stock options may be exercised is changed from three
years to seven years. Options to purchase not more than 50,000 shares of
treasury stock that were granted to the President of the Company in 2001 will
expire in 2008.
-8-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
(Continued)
BUSINESS SEGMENT INFORMATION
Reportable segments for the nine months and three months ended September 30,
2002 and 2001 are as follows:
Nine months ended Three months ended
September 30, September 30,
2002 2001 2002 2001
NET SALES:
Rubber and Foam Products $4,830,187 4,446,327 1,338,715 1,258,621
Bowling Pins 1,776,811 1,737,407 888,078 575,909
Real Estate Operations 659,786 658,419 194,640 116,001
Intersegment net sales (104,568) (276,003) (56,209) (91,400)
--------- --------- --------- ---------
7,162,216 6,566,150 2,365,224 1,859,131
Timber sales reported in
gain on sale of property
and equipment (288,272) (324,685) (71,763) -
--------- --------- --------- ---------
TOTAL SALES $6,873,944 6,241,465 2,293,461 1,859,131
========= ========= ========= =========
OPERATING PROFIT (LOSS)
FROM CONTINUING
OPERATIONS:
Rubber and Foam Products $ (310,086) (582,164) (206,009) (201,693)
Bowling Pins 202,128 64,214 121,492 8,327
Real Estate Operations 240,705 213,609 47,527 (36,635)
--------- --------- --------- ---------
TOTAL OPERATING
PROFIT (LOSS) FROM
CONTINUING OPERATIONS 132,747 (304,341) (36,990) (230,001)
Interest expense - net (131,872) (233,798) (38,858) (63,580)
Other unallocated corporate
income - net 1,723,027 2,971,570 562,870 511,524
Income tax (provision)
benefit (235,164) (438,139) (74,220) 56,646
--------- --------- ------- ---------
NET INCOME $1,488,738 1,995,292 412,802 274,589
========= ========= ======= =========
-9-
PART I - FINANCIAL INFORMATION
(Continued)
Item 1. Financial Statements.
VULCAN INTERNATIONAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2002 and 2001
(Continued)
REVIEW BY INDEPENDENT ACCOUNTANTS
The condensed consolidated financial statements at September 30, 2002, and
for the nine-month period then ended have been reviewed, prior to filing, by
the Registrant's independent accountants, J.D. Cloud & Co. L.L.P., whose
report covering their review of the financial statements is included in
this report.
-10-
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
Vulcan International Corporation
Wilmington, Delaware
We have reviewed the accompanying condensed consolidated balance sheet of
Vulcan International Corporation and subsidiaries as of September 30, 2002,
and the related condensed consolidated statements of income for the nine-
month and three-month periods ended September 30, 2002 and 2001 and the
related statements of cash flows for the nine-months ended September 30,
2002 and 2001. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with U.S. generally accepted
auditing standards, the consolidated balance sheet of Vulcan International
Corporation and subsidiaries as of December 31, 2001, and the related
consolidated statements of income, shareholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February
14, 2002, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 2001, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/J.D. CLOUD & CO. L.L.P.
------------------------------
Certified Public Accountants
Cincinnati, Ohio
October 31, 2002
-11-
PART I - FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net sales revenue from continuing operations increased $632,479 or 10.1% and
cost of sales increased $289,029 or 4.8% during the nine months ended
September 30, 2002 compared to the corresponding period in 2001. Net sales
revenue for the third quarter of 2002 increased $434,330 or 23.4% and cost of
sales increased $336,281 or 18.5% compared to the corresponding quarter in
2001. These changes are due to increased sales in the Company's Rubber and
Foam and Bowling Pin segments.
General and administrative expenses decreased $35,375 or 2.4% in the nine
months ended September 30, 2002, as compared to the corresponding period in
2001. General and administrative expenses for the third quarter of 2002
decreased $4,327 or 0.9% compared to the corresponding quarter in 2001.
These decreases are primarily due to decreased professional fees relating
to environmental matters.
Interest expense decreased $101,926 for the nine months ended September 30,
2002. Interest expense for the three month period ended September 30, 2002
decreased $24,722. These decreases were due to decreased borrowings under
the Company's line of credit agreement.
Gains on the sale of property, equipment and marketable securities were
$784,402 for the nine months ended September 30, 2002, as compared to
$2,185,289 for the corresponding period in 2001. Gains in 2002 and 2001
were primarily the result of the sale of marketable securities and timber.
The Company has a 50% interest in a joint venture, Vulcan Brunswick Bowling
Pin Company (VBBPC) which manufactures bowling pins in Antigo, Wisconsin,
for Brunswick and the Company. The Company received cash distributions of
$400,000 from VBBPC during the first nine months of 2002. The excess of
cash distributions over the Company's investment in VBBPC of $120,245 is
included in other liabilities at September 30, 2002. As income is earned
by VBBPC, the liability will be decreased. Any balance remaining at
December 31 will be recognized as income.
-12-
PART I - FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. (Continued)
Summarized income statement information for VBBPC consists of the following:
Nine Months Ended Three Months ended
September 30, September 30,
2002 2001 2002 2001
Net sales $4,636,356 2,935,079 1,530,288 503,741
Costs and expenses 4,214,866 2,767,348 1,391,168 503,741
--------- --------- --------- -------
Net income $ 421,490 167,731 139,120 -
========= ========= ========= =======
Company's 50% equity
in net income $ 210,745 83,865 69,560 -
========= ========= ========= =======
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements during the third quarter of 2002 were funded
in part through earnings and noncash charges such as depreciation and
amortization and from the sale of timber, equipment and marketable securities.
The cash from these transactions was primarily used in operations. The
Company expects to continue, when necessary, to use short-term borrowings
to meet cash requirements not fully provided by earnings, depreciation and
amortization. During the nine months ended September 30, 2002, the Company
acquired 20,760 shares of treasury stock for $825,393 and 500 shares of
treasury stock were sold to a director for $19,885 pursuant to the right of
any director to purchase up to 25,000 shares at the current market price in
any twelve month period. There were approximately $68,000 of commitments
for capital expenditures as of September 30, 2002.
Item 3. Quantitative and Qualitative Disclosures about Market Risks
MARKETABLE SECURITIES
The fair value of marketable securities has declined $23,287,711 from
December 31, 2001 to October 31, 2002. At October 31, 2002 the fair value
of marketable securities was $56,346,697 as compared to $53,734,516 at
September 30, 2002.
The net unrealized holding gain at October 31, 2002 was approximately
$33,019,000 net of deferred taxes of approximately $17,010,000. The
Company is subject to the risk that the fair value of marketable securities
could decline further.
-13-
PART I - FINANCIAL INFORMATION
(Continued)
Item 4. Controls and Procedures
The Chief Executive Officer and the principal financial officer have
reviewed, as of a date within 90 days of this filing, the disclosure
controls and procedures that ensure that information relating to the
Company required to be disclosed by the Company in the reports that it
files or submits under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported in a timely
and proper manner. Based upon this review, the Company believes that
there are adequate controls and procedures in place. There are no
significant changes in the internal controls or other factors that
could affect these controls after the date of the evaluation.
-14-
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 1, 1990 the United States of America filed a Complaint against the
Company and others in the United States District Court for the District
of Massachusetts claiming that the Company was a potentially responsible
party with respect to the Re-Solve, Inc. Superfund Site in North Dartmouth,
Massachusetts seeking to recover response costs incurred and to be incurred
in the future in connection with this Site.
Although the Company had engaged counsel to represent it in that action,
the Company was first informed on March 28, 2001 that the Court had entered,
pursuant to prior rulings, an unopposed "Final Judgment" against the Company
on September 22, 1999. The "Final Judgment" awarded damages against the
Company in favor of the United States in the amount of $3,465,438 for
unreimbursed response costs and accrued interest, plus any additional past
unreimbursed response costs, interest and certain future costs the United
States incurs at the site. The United States filed a notice of lien in
certain jurisdictions on real property of the Company and its subsidiary
Vulcan Corporation in the dollar amount of the judgment, plus interest.
In 1999 the Company recorded an estimated liability of $2,981,000, net of
$1,734,000 tax, for the judgment, accrued interest for the past costs and
a discounted present value for estimated future costs in connection with
the site. This estimated liability was calculated based on the "Final
Judgment" and using other information provided by the U.S. EPA. The
Company expensed $151,000 and $140,000, after tax, for the years ended
December 31, 2001 and 2000 and $77,000 and $26,000, after tax, for the
nine months and three months ended September 30, 2002, for accrued interest
and amortization of estimated future costs related to this matter.
The liability for future costs is a significant estimate of the future
costs and it is subject to change as actual costs are incurred and reported
by the Environmental Protection Agency.
The Company is presently continuing an investigation into this matter and
intends to vigorously pursue all available legal remedies to set aside all
orders and liens relating to the asserted liability and to defend itself
against the underlying allegations. Counsel for the Company is also
vigorously pursuing settlement negotiations with counsel for the United
States. To the extent that the Company is able to settle this liability,
or to obtain judicial relief, for an amount less than it has accrued, the
difference will be recorded as income in the year the obligation is settled.
The Company was advised by the U.S. Environmental Protection Agency several
years ago that it was one of at least 122 large generator potentially
responsible parties ("PRP's") with regard to remediation of the Union Chemical
Company, Inc. Site, South Hope, Maine, where the potential joint and several
liability was in the range of $15 million. The Company, along with many other
PRP's, entered into a consent agreement with U.S. EPA to remediate the Site,
and the Company is now a party to a Remedial Design/Remedial Action Trust
-15-
PART II - OTHER INFORMATION
(Continued)
Item 1. Legal Proceedings. (continued)
Agreement for the purpose of undertaking clean-up responsibilities at the Site.
Most of the remedial work has now been completed. In 2000, PRP's estimated
that additional funds of approximately $1 million would be required to complete
remediation of the Site. The Registrant's estimated share of that amount was
approximately $5,000 and was paid in 2000. If the projected cost of the
remaining remediation tasks remains at approximately $1 million, the Registrant
will not have additional payments. There may be other potential clean-up
liabilities at other sites of which the Company has no specific knowledge.
The Company has an interest in a partnership which owns certain real estate.
On August 13, 1999 a Complaint for money damages, in excess of $25,000, based
upon breach of fiduciary duty was filed by the other partner in the Court of
Common Pleas in Hamilton County, Ohio. Essentially, the plaintiff is seeking
an adjustment of the capital account balances which would result in a higher
distribution of cash flow. On March 27, 2001, the plaintiff threatened to
file an Amended Complaint that alleges damages of $1,062,000 and costs, plus
punitive damages of $2,000,000 on various grounds. The Registrant believes
that the suit is without merit and has been defending itself vigorously
against the issues raised.
CCBA appealed a real estate tax assessment from 1999 that had increased the
annual real estate tax by approximately $96,000. The local school board has
appealed the revision and reduced its initial appraised value of the property.
During 2001, the partnership received a $96,000 refund of the additional tax
paid in 1999. CCBA has recorded a liability of approximately $119,000
related to this issue based on the revised value asserted by the local school
board. If CCBA is successful, this liability will be recognized as income.
The Company is involved in other litigation matters and claims which are
normal in the course of operations. Management believes that the resolution
of these matters will not have a material effect on the Company's business
or financial condition.
The accompanying condensed consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to reflect a
fair presentation of financial position, results of operations and cash flows
for the interim periods. All such adjustments are of a normal recurring
nature.
There were no securities of the Company sold by the Company during the
nine months ended September 30, 2002, that were not registered under the
Securities Act of 1933, in reliance upon an exemption from registration
provided by Section 4(2) of the Act.
-16-
PART II - OTHER INFORMATION
(Continued)
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 99.1 - Officer's Certificate pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act.
Exhibit 99.2 - Officer's Certificate pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act.
b. The Company was not required to file Form 8-K for the quarter
ended September 30, 2002.
-17-
PART II - OTHER INFORMATION
(Continued)
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.
VULCAN INTERNATIONAL CORPORATION
November 14, 2002 By: /s/Benjamin Gettler
- -------------------- --------------------------------
Date Benjamin Gettler
Chairman of the Board, President
and Chief Executive Officer
November 14, 2002 By: /s/Vernon E. Bachman
- -------------------- -----------------------------------
Date Vernon E. Bachman
Vice President, Secretary-Treasurer
and Principal Accounting Officer
-18-
CERTIFICATIONS
In connection with the Quarterly Report of Vulcan International Corporation
on Form 10-Q for the period ending September 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Benjamin Gettler, Chairman of the Board and Chief Executive Officer of
Vulcan International Corporation, certify, that:
(1) I have reviewed this quarterly report on Form 10-Q of Vulcan
International Corporation;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations,
and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as
defined in Exchange Act Rules 13a-14 and 15d-14, for the Registrant
and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which the
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
control and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
(5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of the Registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
(6)
The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Benjamin Gettler
- -------------------------------------
Benjamin Gettler
Chairman of the Board and
Chief Executive Officer
November 14, 2002
-19-
CERTIFICATIONS
In connection with the Quarterly Report of Vulcan International Corporation
on Form 10-Q for the period ending September 30, 2002, as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I,
Vernon E. Bachman, Vice President and Secretary-Treasurer of Vulcan
International Corporation, certify, that:
(1) I have reviewed this quarterly report on Form 10-Q of the Vulcan
International Corporation;
(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations,
and cash flows of the registrant as of, and for, the periods
presented in this quarterly report;
(4) The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures, as
defined in Exchange Act Rules 13a-14 and 15d-14, for the Registrant
and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which the
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
control and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
(5) The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of the Registrant's board of directors:
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize, and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls.
(6)
The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Vernon E. Bachman
- -------------------------------------
Vernon E. Bachman
Vice President and
Secretary-Treasurer
November 14, 2002
-20-