10-Q 1 d10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 -------------------------------------------------- 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 -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 36-0724340 ----------------------------------------------------- -------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 1500 West Shure Drive, Suite 500, Arlington Heights, Illinois 60004-7803 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (847) 394-8730 -------------------------------------------------------------------------------- (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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at August 9, 2001 -------------------------------- ------------------------------ (Common stock, $.01 par value) 28,023,449 AMCOL INTERNATIONAL CORPORATION INDEX Page No. Part I - Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 1 Condensed Consolidated Statements of Operations - six months ended June 30, 2001 and 2000 2 Condensed Consolidated Statements of Comprehensive Income - six months ended June 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows - six months ended June 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3 Quantitative and Qualitative Disclosures About Market Risk 19 Part II - Other Information Item 4 Submission of Matters to a Vote of Security Holders 20 Item 6 Exhibits and Reports on Form 8-K 21 Part 1 -- Item 1: FINANCIAL INFORMATION AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) ASSETS
June 30, 2001 December 31, (Unaudited) 2000 -------------------------- ----------------------- Current assets: Cash $ 5,531 $ 10,057 Cash Equivalents 44,426 168,549 Accounts receivable, net 51,790 47,387 Inventories 31,559 33,385 Prepaid expenses 6,207 6,588 Current deferred tax assets 3,815 3,821 ------------------------- ---------------------- Total current assets 143,328 269,787 ------------------------- ---------------------- Investments in and advances to joint ventures 14,116 12,672 ------------------------- ---------------------- Property, plant, equipment and mineral reserves 192,063 198,521 Less accumulated depreciation 117,377 118,369 ------------------------- ---------------------- 74,686 80,152 Intangible assets 419 465 Other long-term assets 9,776 11,052 ------------------------- ---------------------- $ 242,325 $ 374,128 ========================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities: Notes payable and current maturities of debt $ - $ 1,042 Accounts payable 8,199 12,453 Accrued income taxes 6,714 135,095 Accrued liabilities 29,393 29,349 ------------------------- ---------------------- Total current liabilities 44,306 177,939 ------------------------- ---------------------- Long-term debt 55,799 51,334 ------------------------- ---------------------- Other long-term obligations 10,086 9,948 ------------------------- ---------------------- Stockholders' equity Common stock 320 320 Additional paid-in capital 73,474 75,536 Accumulated comprehensive income (4,144) (1,495) Retained earnings 84,366 79,336 Treasury stock (21,882) (18,790) ------------------------- --------------------- 132,134 134,907 ------------------------- --------------------- $ 242,325 $ 374,128 ========================= =====================
*Condensed from audited financial statements. The accompanying notes are an integral part of these condensed financial statements. -1- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Six months ended June 30, Three months ended June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 --------- --------- --------- --------- CONTINUING OPERATIONS --------------------- Net sales $ 139,734 $ 149,802 $ 72,296 $ 77,025 Cost of sales 107,521 115,159 55,309 59,288 --------- --------- --------- --------- Gross profit 32,213 34,643 16,987 17,737 General, selling and administrative expenses 24,723 26,068 12,271 13,071 Business realignment and other charges (credits) (223) - - - --------- --------- --------- --------- Operating profit 7,713 8,575 4,716 4,666 --------- --------- --------- --------- Other income (expense): Investment income 2,579 3,084 429 3,084 Change in value of interest rate swap (401) - (85) - Interest expense, net (1,638) (1,417) (825) (832) Other (expense) income, net 44 (51) (10) - --------- --------- --------- --------- 584 1,616 (491) 2,252 --------- --------- --------- --------- Income from continuing operations before income taxes and equity in income of joint ventures 8,297 10,191 4,225 6,918 Income taxes 2,621 3,929 1,329 2,811 --------- --------- --------- --------- Income from continuing operations before equity in income of joint ventures 5,676 6,262 2,896 4,107 Equity in income of joint ventures 243 151 111 21 --------- --------- --------- --------- Income from continuing operations 5,919 6,413 3,007 4,128 --------- --------- --------- --------- DISCONTINUED OPERATIONS (Note 6) -------------------------------- Income from operations of polymers segment (net of income taxes) - 7,766 - 4,314 Gain on disposal of polymers segment (net of income taxes of $207,570) - 313,871 - 313,871 --------- --------- --------- --------- - 321,637 - 318,185 --------- --------- --------- --------- Extraordinary item-loss on early extinguishment of debt (net of taxes) - (443) - (443) Cumulative effect of change in accounting principle (net of taxes) (182) - - - --------- --------- --------- --------- (182) (443) - (443) --------- --------- --------- --------- Net income $ 5,737 $ 327,607 $ 3,007 $ 321,870 ========= ========= ========= =========
The accompanying notes are an integral part of these condensed financial statements. 2 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except number of shares and per share data) (continued)
Six months ended June 30, Three months ended June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Weighted average common shares 28,212,303 26,997,866 27,765,386 27,088,225 ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding 30,850,945 27,509,216 30,638,342 27,583,451 ========== ========== ========== ========== Basic earnings per share ------------------------ Continuing operations $ 0.21 $ 0.24 $ 0.11 $ 0.15 ---------- ---------- ---------- ---------- Discontinued operations From operations $ - $ 0.29 $ - $ 0.16 Gain on sale $ - $ 11.63 $ - $ 11.59 ---------- ---------- ---------- ---------- $ - $ 11.92 $ - $ 11.75 ---------- ---------- ---------- ---------- Extraordinary item $ - $ (0.02) $ - $ (0.02) ---------- ---------- ---------- ---------- Cumulative effect of change in accounting principle $ (0.01) $ - $ - $ - ---------- ---------- ---------- ---------- Total basic earnings per share $ 0.20 $ 12.14 $ 0.11 $ 11.88 ========== ========== ========== ========== Diluted earnings per share -------------------------- Continuing operations $ 0.19 $ 0.23 $ 0.10 $ 0.15 Discontinued operations From operations $ - $ 0.28 $ - $ 0.16 Gain on sale $ - $ 11.41 $ - $ 11.38 ---------- ---------- ---------- ---------- $ - $ 11.69 $ - $ 11.54 ---------- ---------- ---------- ---------- Extraordinary item $ - $ (0.02) $ - $ (0.02) ---------- ---------- ---------- ---------- Cumulative effect of change in accounting principle $ (0.01) $ - $ - $ - ---------- ---------- ---------- ---------- Total diluted earnings per share $ 0.18 $ 11.90 $ 0.10 $ 11.67 ========== ========== ========== ========== Dividends declared per share $ 0.025 $ 0.14 $ 0.015 $ 0.07 ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed financial statements. -3- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands)
Six months ended June 30, Three months ended June 30, --------------------------------- --------------------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Net income $ 5,737 $ 327,607 $ 3,007 $ 321,870 Other comprehensive income: Foreign currency translation adjustment (2,649) (4,909) 65 (4,417) Reclassification adjustment for foreign currency losses included in net income - 5,146 - 5,146 ---------- ---------- ---------- ---------- Comprehensive income $ 3,088 $ 327,844 $ 3,072 $ 322,599 ========== ========== ========== ==========
The accompanying notes are an integral part of these condensed financial statements. -4- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Six months ended June 30, 2001 ------------------------------ 2001 2000 --------- --------- Cash flows from operating activities: Income from continuing operations $ 5,919 $ 6,413 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation, depletion, and amortization 8,755 8,898 Change in value of interest rate swap 401 - Other (361) 909 (Increase) in current assets (2,270) (1,045) Increase/(decrease) in current liabilities (5,156) 2,164 --------- --------- Net cash provided by operating activities of continuing operations 7,288 17,339 --------- --------- Net cash provided by discontinued operations - 665 --------- --------- Cash flows from investing activities: Acquisition of land, mineral reserves, depreciable and intangible assets (4,453) (6,732) Tax payments related to absorbent polymers segment sale (127,435) - Net proceeds from sale of absorbent polymers segment - 648,815 Other (1,611) 599 --------- --------- Net cash provided by (used in) investing activities (133,499) 642,682 --------- --------- Cash flows from financing activities: Net change in outstanding debt 3,423 (34,359) Partial liquidation distribution - (384,829) Early extinguishment of debt - (443) Dividends paid (707) (3,776) Net treasury stock transactions (5,154) 5,527 --------- --------- Net cash used in financing activities (2,438) (417,880) --------- --------- Net increase (decrease) in cash and cash equivalents (128,649) 242,806 Cash and cash equivalents at beginning of period 178,606 3,954 --------- --------- Cash and cash equivalents at end of period $ 49,957 $ 246,760 ========= ========= Supplemental disclosure of cash flow information: Actual cash paid for: Interest $ 1,454 $ 3,913 ========= ========= Income taxes $ 130,497 $ 9,460 ========= =========
The accompanying notes are an integral part of these condensed financial statements. -5- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands) Note 1: BASIS OF PRESENTATION The financial information included herein, other than the condensed consolidated balance sheet as of December 31, 2000, has been prepared by management without audit by independent certified public accountants who do not express an opinion thereon. The condensed consolidated balance sheet as of December 31, 2000, has been derived from, but does not include all the disclosures contained in, the audited consolidated financial statements for the year ended December 31, 2000. The information furnished herein includes all adjustments which are, in the opinion of management, necessary for a fair statement of the results of the interim period, 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 2000 Form 10-K which accompanies the 2000 Corporate Report. The results of operations for the six-month period ended June 30, 2001, are not necessarily indicative of the results to be expected for the full year. Certain items in the 2000 condensed consolidated financial statements have been reclassified to comply with the presentation for 2001. Note 2: INVENTORIES Inventories at June 30, 2001 have been valued using the same methods as at December 31, 2000. The composition of inventories at June 30, 2001 and December 31, 2000, was as follows:
June 30, 2001 December 31, 2000 ------------- ----------------- Crude stockpile $12,894 $14,292 Finished goods 10,165 10,952 Other raw material, container and supplies inventories 8,500 8,141 ------- ------- $31,559 $33,385 ======= =======
-6- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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. Diluted earnings per share were computed by dividing the net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options outstanding at the end of each period.
Six months ended June 30, Three months ended June 30, ----------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ---------- ---------- ---------- Weighted average common shares outstanding - Basic 28,212,303 26,997,866 27,765,386 27,088,225 Assumed effect of exercise of stock options, treasury stock method 2,638,642 511,350 2,872,956 495,226 ----------- ---------- ---------- ---------- Weighted average common shares outstanding - Diluted 30,850,945 27,509,216 30,638,342 27,583,451 =========== ========== ========== ==========
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 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 and cash equivalents, corporate leasehold improvements, the nanocomposite plant investment and other miscellaneous equipment. -7- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following summaries set forth certain financial information by business segment as of and for the six months ended June 30, 2001 and 2000. BUSINESS SEGMENT INFORMATION Six Months Ended June 30, --------------------------------------- 2001 2000 ----------------- ----------------- Business Segment: Revenues: Minerals $ 80,108 $ 91,834 Environmental 48,540 46,772 Transportation 16,075 16,532 Intersegment shipping (4,989) (5,336) --------- --------- Total $ 139,734 $ 149,802 ========= ========= Operating profit (loss): Minerals $ 7,013 $ 10,146 Environmental 6,730 5,366 Transportation 669 729 Corporate (6,699) (7,666) --------- --------- Total $ 7,713 $ 8,575 ========= ========= June 30, 2001 December 31, 2000 ----------------- ----------------- Assets: Minerals $ 112,411 $ 122,942 Environmental 59,312 59,258 Transportation 2,505 1,791 Corporate 68,097 190,137 --------- --------- Total $ 242,325 $ 374,128 ========= ========= Note 5: DERIVATIVES From time to time, the Company uses financial derivatives, principally swaps, forward contracts and options, in its management of foreign currency and interest rate exposures. These contracts hedge transactions and balances for periods consistent with committed exposures. The Company uses variable rate credit facilities to finance its operations. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. The interest rate swap agreement changes the variable rate cash flow exposure on a portion of the Company's borrowings under its committed credit facilities to fixed rate cash flows. -8- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The agreement calls for the Company to make fixed rate payments and to receive variable rate cash flows based on the notional amount. This means the Company will receive funds if the variable rate (LIBOR) increases above the fixed rate, and must pay the other party if LIBOR decreases below the fixed rate during the term of the agreement. Interest rate differentials are paid or received on a quarterly basis. Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and for Hedging Activities, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities. It is the Company's judgement that SFAS No. 133 requires the Company to record the change in value of this agreement in its operating results in the period of change. Accordingly, the Company recognized the fair value of the swap and the option as of January 1, 2001 by recording the cumulative effect of a change in accounting principle in the amount of $182 (net of the related income tax benefit of $115) in the accompanying condensed consolidated statements of operations. The decline in the fair value of the swap and option during the period ended June 30, 2001 of $401 has been reflected in operating results for the period. The Company terminated the interest rate swap agreement in the second quarter of 2001. Note 6: DISCONTINUED OPERATIONS In 2000, the Company sold its absorbent polymers segment to BASF AG. Accordingly, the absorbent polymers segment is reported as a discontinued operation in the accompanying condensed consolidated financial statements. The condensed consolidated financial statements have been reclassified to report separately the operating results of the absorbent polymers segment for all periods presented. The transaction closed on June 1, 2000, at which time the Company received gross proceeds of approximately $656,500. The sale resulted in a pretax gain of approximately $525,300 ($316,300 after income taxes), which was net of costs incurred in connection with the sale. The net proceeds from the sale transaction were used to fund a partial liquidation distribution to the Company's shareholders on June 30, 2000. -9- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Summary information regarding the operating results of the absorbent polymers segment for the three and six month period ended June 30, 2000 is as follows: Six months ended June 30* Three months ended June 30* ----------------------------- ----------------------------- 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Net sales $ - $ 86,000 $ - $ 35,390 Operating profit - 12,436 - 6,096 Income taxes - 3,920 - 1,653 Net income - 7,766 - 4,314 *The 2000 information is for five and two months, respectively. Note 7: LITIGATION In 1998, the following claims were filed in Chester, England against certain of the Company's subsidiaries: Adams, et al. v. AMCOL (Holdings) Limited and Volclay Limited, (AKA Marie Geraldine O'Laughlin, et al.), High Court of Justice, QB Division, Chester District 1998 A. No. 206; and Anziani, et al. v. AMCOL (Holdings) Limited and Volclay Limited, High Court of Justice, QB Division, Chester District 1998 A. No. 365. The claims are for property damage, nuisance and personal injury based on the alleged accidental release of dust from Volclay Limited's facility in Wallasey, England. The claims are being made on behalf of up to 1,600 persons who, at some point during the period from 1965 to the present, resided in the vicinity of the Wallasey, England facility. During the second half of 2000, the Company was informed that its insurance carrier had denied coverage related to this matter and cancelled the applicable insurance policy. The Company intends to vigorously pursue reinstatement of the insurance policy, however, as a matter of prudent accounting practice, the Company accrued the estimated settlement and related legal fees of $6,500 during the fourth quarter of 2000. In July 2001, the Company settled the dust litigation and the cost was within the reserves previously recorded. -10- Item 2: AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Company's financial position and operating results during the periods included in the accompanying condensed consolidated financial statements. Six Months Ended June 30, 2001 vs. 2000 --------------------------------------- Net sales decreased by $10.1 million or 6.7% for the period. Gross profit decreased $2.4 million or 7.1% while operating profit decreased $0.9 million or 10.1%. The decrease in sales and respective decrease in gross profit and operating profit was caused by lower volume and pricing in the Company's domestic minerals business. General, selling and administrative expenses decreased $1.3 million or 6.0% primarily due to reduced corporate costs. In January, the Company announced it had reached a decision to sell its European cat litter operations and exit the U.K. cat litter business. In connection with this decision, the Company recognized an asset impairment charge in the fourth quarter of 2000 to write-down the assets related to the U.K. operation to their estimated recoverable amount. The Company categorized the net operating results of the subject businesses, which consisted principally of wind-up activities, as business realignment and other charges (credits) in the first quarter. The net reduction in operating expenses of $0.2 million in the six months ended June 30, 2001 reflects the proceeds realized from the disposal of certain cat litter assets during the period. Investment income earned in both periods represents earnings on short-term, interest bearing securities. The Company acquired these securities with a portion of the proceeds from the sale of its absorbent polymers segment to BASF AG on June 1, 2000. The reduction in investment income of $0.5 million or 16.4% for the six month period reflects lower cash equivalents due to the payment of income taxes in the first quarter of 2001 related to the sale of the absorbent polymer business. The Company may ultimately use the remaining funds to reduce long-term debt. As a result of adopting the requirements of SFAS No. 133 and SFAS No. 138, the Company recorded a charge to earnings of $0.4 million before income taxes that related to the change in value of an interest rate swap and option agreement during six months ended June 30, 2001. The change in value was attributed to the reduction in short-term interest rates during the period. The Company also recorded a charge of $0.2 million (net of tax) to recognize the cumulative effect of a change in accounting principle related to accounting for derivative instruments which represented the change in the fair value of the interest rate swap and option agreement through December 31, 2000. The Company terminated the interest rate swap and option agreement in the second quarter of 2001. Net interest expense increased $0.2 million or 16.4% from the prior year. This is primarily attributed to the allocation of $1.2 million of interest expense incurred in 2000 to discontinued operations. The effective income tax rate was 31.8% in the current year compared to 38.6% in the prior year period. A tax provision was not required for taxable income recognized by the Company's U.K-based businesses due to utilization of tax deductions carried forward from previous years that related to the U.K. -11- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) cat litter business. In preparation of the Company's financial statements for the year ended December 31, 2000, management did not believe the Company would realize the benefits of future tax deductions generated from the U.K-based businesses. Consequently, a full valuation allowance was provided against deferred tax assets related to operating loss carry forwards generated at the U.K. minerals business. The tax benefit is expected to continue for the duration of the fiscal year. Income from continuing operations decreased $0.5 million or 7.7% from the prior year period. Diluted earnings per share from continuing operations decreased $0.04 or 17.4%. Weighted average common and common equivalent shares outstanding increased 12.1% due to a larger number of "in the money" stock options outstanding which resulted from an equity restructuring which took place in June 2000. Discontinued operations reflect the income earned from the absorbent polymers segment during the first five months of 2000 as well as the gain on the disposal of this segment. An extraordinary net charge of $0.4 million in 2000 was incurred as a result of early extinguishment of long-term debt. Following is a brief discussion for each business segment. Shipping revenues and costs for 2000 have been reclassified in the segment information to comply with the requirements of EITF 00-10, "Accounting for Shipping and Handling Fees and Costs". MINERALS
Six Months Ended June 30, ------------------------------------------------------------------------------------- 2001 2000 2001 vs. 2000 ----------------------- ------------------------ ------------------------- $ Change % Change -------- -------- Product sales $ 71,580 $ 81,130 Shipping revenue 8,528 10,704 ----------------------- ------------------------ Net sales 80,108 100.0% 91,834 100.0% (11,726) -12.8% ----------------------- ------------------------ Cost of sales-product 57,419 63,253 Cost of sales-shipping 8,528 10,704 ----------------------- ------------------------ Cost of sales 65,947 82.3% 73,957 80.5% ----------------------- ------------------------ Grosprofit 14,161 17.7% 17,877 19.5% (3,716) -20.8% General, selling and administrative expense 7,371 9.2% 7,731 8.4% (360) -4.7% Business realignment and other charges (credits) (223) -0.3% 0 0.0% (223) NM ----------------------- ------------------------ -------- Operating profit $ 7,013 8.8% $ 10,146 11.0% (3,133) -30.9%
Net sales declined 12.8% from the prior-year period while operating profits decreased 30.9%. Lower volumes in the domestic minerals business, lower sales in U.S. export shipments and lower sales in the U.K. due to the Company's exit from the cat litter business caused the decrease in sales. Increased unit production costs in the domestic minerals business caused primarily by lower volume levels also reduced gross margins. General, selling and administrative expenses declined due to lower operating expenses in the U.K. as a result of the exit from the cat litter business. -12- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) As explained above the business realignment credit recognized in the period Reflects the excess of proceeds received from the sale of certain assets related to the U.K. cat litter business over operating costs for the business.
ENVIRONMENTAL Six Months Ended June 30, ---------------------------------------------------------------------- 2001 2000 2001 vs. 2000 ----------------- ---------------- ------------------------ $ Change % Change ------------------------ Product sales $45,088 $42,902 Shipping revenue 3,452 3,870 ----------------- ---------------- Net sales 48,540 100.0% 46,772 100.0% 1,768 3.8% ----------------- ---------------- Cost of sales-product 28,743 27,902 Cost of sales-shipping 3,452 3,870 ----------------- ---------------- Cost of sales 32,195 66.3% 31,772 67.9% ----------------- ---------------- Gross profit 16,345 33.7% 15,000 32.1% 1,345 9.0% General, selling and administrative expense 9,615 19.8% 9,634 20.6% (19) -0.2% ----------------- ---------------- --------- Operating profit $ 6,730 13.9% $ 5,366 11.5% 1,364 25.4%
Operating profits improved 25.4% on a net sales increase of 3.8%. Gross margins expanded by 160 basis points primarily due to increased sales of more profitable products at the segment's European unit and lower production costs at that operation. Operating margins expanded due to flat general, selling and administrative expenses.
TRANSPORTATION Six Months Ended June 30, ---------------------------------------------------------------------- 2001 2000 2001 vs. 2000 ----------------- ---------------- ------------------------ $ Change % Change ------------------------ Net sales $16,075 100.0% $16,532 100.0% (457) -2.8% Cost of sales 14,368 89.4% 14,766 89.3% ----------------- ---------------- Gross profit 1,707 10.6% 1,766 10.7% (59) -3.3% General, selling and administrative expense 1,038 6.5% 1,037 6.3% 1 0.1% ----------------- ---------------- --------- Operating profit $ 669 4.2% $ 729 4.4% (60) -8.2%
Lower business levels contributed to a 2.8% decline in sales from the prior-year period. Lower sales and flat general, selling and administrative further reduced operating margins by 8.2%. -13- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
CORPORATE Six Months Ended June 30, ---------------------------------------------------------- 2001 2000 2001 vs. 2000 -------- -------- ------------------------ $ Change % Change ------------------------ Intersegment shipping revenues $(4,989) $(5,336) Intersegment shipping costs (4,989) (5,336) ------- ------- Gross profit - - General, selling and administrative expense 4,285 4,570 (285) -6.2% Nanocomposites 2,414 3,096 (682) -22.0% Operating loss $(6,699) $(7,666) 967 12.6%
Intersegment shipping revenues and costs were related to services provided by the transportation segment for the minerals and environmental segments. The services were provided at arms-length rates, and billed by the transportation segment to the minerals and environmental segments, who in turn billed their customers. The intersegment shipping sales and costs set forth above reflect the elimination of these intersegment transactions. A 22% reduction in the nanocomposites business development costs was the primary reason for the overall 12.6% decrease in corporate expenses. General, selling and administrative expenses decreased 6.2% due a decrease in corporate spending programs. -14- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Three Months Ended June 30, 2001 vs. 2000 ----------------------------------------- Net sales decreased $4.7 million or 6.1% from the prior-year period, gross profit decreased $0.8 or 4.2% and operating profit increased $0.1 million or 1.0%. Lower sales were the result of a decrease in minerals segment shipments in both the U.S. and overseas markets. Operating profits improved over prior year levels due to decreased general, selling and administrative expenses. A reduction in nanocomposites business development costs was the primary reason for the decrease in general, selling and administrative expenses. Investment income decreased $2.7 million or 86.1% from the prior year period. As previously described, investment income is earned on short-term, interest bearing securities that were acquired with a portion of the proceeds from the sale of the absorbent polymers segment on June 1, 2000. The decrease in investment income resulted from the lower amount of securities held in the current year period as income taxes related to the sale of the absorbent polymers segment were paid in the first quarter of 2001. The effective tax rate for the period was 31.5% compared to 40.6% in the prior year. The current year rate reflects utilization of tax deductions related to the Company's U.K.-based businesses not previously recognized. Further explanation of this matter is provided in the six month comparison section of the filing. Income from continuing operations was $0.10 per diluted share for the period compared to $0.15 per diluted share in the prior year. Weighted average common and common equivalent shares outstanding increased 11.1% primarily due to an equity restructuring executed in June 2000 that increased the number of stock options outstanding. On June 1, 2000, the absorbent polymers segment was sold to BASF AG resulting in a net gain of $313.9 million, or $11.38 per diluted share. The results of operations for the polymer segment prior to disposition amounted to $4.3 million, net of taxes, for the 2000 period which equated to $0.16 per diluted share. An extraordinary net charge of $0.4 million, or $0.02 per diluted share was incurred in 2000 for the early extinguishment of long-term debt. -15- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
MINERALS Three Months ended June 30, ------------------------------------------------------------------------------ 2001 2000 2001 vs. 2000 ----------------------- --------------------- ------------------------- $ Change % Change -------------------------- Product sales $ 35,331 $ 38,922 Shipping revenue 3,223 5,746 ----------------------- --------------------- Net sales 38,554 100.0% 44,668 100.0% (6,114) -13.7% ----------------------- --------------------- Cost of sales-product 28,109 30,413 Cost of sales-shipping 3,223 5,746 ----------------------- --------------------- Cost of sales 31,332 81.3% 36,159 81.0% ----------------------- --------------------- Gross profit 7,222 18.7% 8,509 19.0% (1,287) -15.1% General, selling and administrative expense 3,780 9.8% 3,887 8.7% (107) -2.8% ----------------------- --------------------- ----------- Operating profit $ 3,442 8.9% $ 4,622 10.3% (1,180) -25.5%
Net sales decreased $6.1 million or 13.7%, gross profit decreased $1.3 million or 15.1% and operating profit decreased $1.2 million or 25.5% from the prior year period. Lower shipments in the domestic metalcasting market, lower export shipments and the exit from the U.K. cat litter business were the primary reasons for the decline in sales. The lower sales combined with relatively flat spending on general, selling and administrative expense reduced operating margins by 140 basis points.
ENVIRONMENTAL Three Months ended June 30, ------------------------------------------------------------------------------ 2001 2000 2001 vs. 2000 ----------------------- --------------------- ------------------------- $ Change % Change -------------------------- Product sales $ 25,876 $ 24,467 Shipping revenue 2,208 2,360 ----------------------- --------------------- Net sales 28,084 100.0% 26,827 100.0% 1,257 4.7% ----------------------- --------------------- Cost of sales-product 17,015 16,167 Cost of sales-shipping 2,208 2,360 ----------------------- --------------------- Cost of sales 19,223 68.4% 18,527 69.1% ----------------------- --------------------- Gross profit 8,861 31.6% 8,300 30.9% 561 6.8% General, selling and administrative expense 4,780 17.0% 4,980 18.6% (200) -4.0% ----------------------- --------------------- ----------- Operating profit 4,081 14.6% 3,320 12.3% 761 22.9%
Net sales increased $1.3 million or 4.7%, gross profit increased $0.6 million or 6.8% and operating profit increased $0.8 million or 22.9% from the prior year period. Environmental offshore, drilling products and building materials product groups contributed to the increase in net sales. Operating margins expanded by 230 basis points. A decrease in general, selling and administrative expenses at the segment's European operation as well as the increased sales of more profitable products at that business unit contributed to the improved results. -16- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) TRANSPORTATION
Three Months ended June 30, ------------------------------------------------------------------------------------- 2001 2000 2001 vs. 2000 ----------------------- ------------------------ ------------------------- $ Change % Change -------- -------- Net sales $ 8,513 100.0% $ 8,597 100.0% (84) -1.0% Cost of sales 7,609 89.4% 7,669 89.2% ----------------------- ------------------------ Gross profit 904 10.6% 928 10.8% (24) -2.6% General, selling and administrative expense 542 6.4% 522 6.1% 20 3.8% ----------------------- ------------------------ --- Operating profit $ 362 4.2% $ 406 4.7% (44) -10.8%
Net sales decreased 1.0% and operating profit decreased 10.8%. Higher fuel costs and increased general, selling and administrative expenses caused the decrease in operating profits. CORPORATE
Three Months ended June 30, ------------------------------------------------------------------------------------- 2001 2000 2001 vs. 2000 ----------------------- ------------------------ ------------------------- $ Change % Change -------- -------- Intersegment shipping revenues $ (2,855) $ (3,067) Intersegment shipping costs (2,855) (3,067) --------- --------- Gross profit - - General, selling and administrative expense 2,080 2,038 42 2.1% Nanocomposites 1,089 1,644 (555) -33.8% --------- --------- ---- Operating loss $ (3,169) $ (3,682) 513 13.9%
Expenses related to development of the nanocomposite technology declined by $0.6 million or 33.8% from the prior year period. Lower research and development costs were the main reason for the reduction in expenses. Liquidity and Capital Resources ------------------------------- The Company had working capital of approximately $99 million and a current ratio of 3.23 -to-1 as of June 30, 2001, compared to approximately $91.8 million of working capital and a current ratio of 1.52-to-1 as of December 31, 2000. Cash equivalents significantly influenced the working capital and corresponding current ratio as of June 30, 2001 and December 31, 2000. The December 31, 2000 calculation was also influenced by accrued income taxes related to the sale of the absorbent polymer business. If the cash equivalents were offset by the accrued income taxes and the excess applied to long-term debt, working capital and current ratio would be $55 million and 1.81-to-1, respectively, at June 30, 2001 and $58.4 million and 2.36-to-1 as of December 31, 2000. -17- AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (continued) ------------------------------------------- For the six months ended June 30, 2001, cash provided by operating activities from continuing operations was $7.5 million. Dividends paid to shareholders were $0.7 million, acquired plant and equipment was $4.5 million and income tax payments that related to the sale of the absorbent polymers segment was $127.4 million. During the six months ended of June 30, 2001, the Company purchased approximately 1.47 million shares of its common stock at an average price of $4.05 per share. Approximately $4 million remains in the stock repurchase authorization approved by the Board of Directors in February 2001. Outstanding debt (short-term and long-term) as of June 30, 2001 was $55.8 million while cash and cash equivalents totaled $50.0 million compared to $52.4 million of debt and $178.6 million of cash and cash equivalents as of December 31, 2000. The decrease in cash equivalents was attributed to the payment of $127.4 million in 2001 for income taxes related to the gain on the sale of the absorbent polymers segment. The Company estimates that approximately $2.5 million of income taxes related to the sale of the absorbent polymer segment remains to be paid. It is currently the intention of the Company to repay long- term debt with the remaining cash equivalents. Long-term debt represented 29.5% of total capitalization as of June 30, 2001 compared to 27.6% as of December 31, 2000. The Company's revolving credit facility of $125 million matures in October 2003. The Company had approximately $75 million in unused, committed credit lines with its five-bank lending consortium at June 30, 2001. Management believes that the credit facilities with the banks, together with funds generated from operations, will be adequate to fund the current capital expenditure and share repurchase programs approved by the board of directors. Forward-Looking Statements -------------------------- Certain statements made from time-to-time by the Company; including statements in the Management's Discussion and Analysis 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 the Company or its 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. The Company's 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, but not limited to the actual growth in the Company's various markets, utilization of the Company's plants, competition in our business segments, operating costs, weather, currency exchange rates, currency devaluations, delays in development, production and marketing of new products, integration of acquired businesses, and other factors detailed from time-to-time in AMCOL's annual report and other reports filed with the Securities and Exchange Commission. -18- Item 3: Quantitative and Qualitative Disclosure About Market Risk The information required by this item is provided in Footnote 4 "Derivative Financial Instruments and Market Risks" under Item 1. -19- PART II - OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Annual Stockholders Meeting of the Company was held on May 17, 2001. (b) At the Annual Stockholders Meeting, the Stockholders voted on the following uncontested matters: each nominee for director was elected by a vote of the Stockholders; and each matter was approved by a vote of the Stockholders as follows: 1. Election of the below-named Nominees of the Board of Directors of AMCOL International Corporation: For Withheld ------------ ------------ Arthur Brown 16,131,871 243,389 Jay D. Proops 16,132,471 242,789 Paul C. Weaver 16,131,758 243,502 John Hughes 16,183,361 191,899 Lawrence E. Washow 16,127,825 247,435 2. To amend AMCOL's 1998 Long-Term Incentive Plan For Against Abstain ------------ ------------ ------------ 14,924,775 1,411,613 38,872 -20- PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K -------------------------------- (a) See Index to Exhibits immediately following the signature (b) No reports on Form 8-K were filed during the quarter ended June 30, 2001. -21- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMCOL INTERNATIONAL CORPORATION Date: August 9, 2001 /s/ Lawrence E. Washow ------------------ ------------------------------------------------- Lawrence E. Washow President and Chief Operating Officer Date: August 9, 2001 /s/ Gary L. Castagna ------------------ ------------------------------------------------- Gary L. Castagna Senior Vice President and Chief Financial Officer and Principal Accounting Officer -22- 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) 10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan (1); as amended (3) 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) 10.7 Change in Control Agreement dated September 20, 2000, by and between Registrant and Lawrence E. Washow (21) 10.8 Change in Control Agreement dated September 22, 2000, by and between Registrant and Peter L. Maul (21) 10.9 AMCOL International Corporation Dividend Reinvestment and Stock Purchase Plan (4); as amended (6) 10.10 AMCOL International Corporation 1993 Stock Plan, as amended and restated (10) 10.11 Credit Agreement by and among AMCOL International Corporation and Harris Trust and Savings Bank, individually and as agent, NBD Bank, LaSalle National Bank and the Northern Trust Company dated October 4, 1994 (7); First Amendment to Credit Agreement dated September 25, 1995 (9), Second Amendment to Credit Agreement dated March 28, 1996 (-), Third Amendment to Credit Agreement dated September 12, 1996 (11), Fourth Amendment to Credit Agreement dated December 15, 1998 (18) and Fifth Amendment to Credit Agreement dated May 26, 2000 (20) 10.15 AMCOL International Corporation 1998 Long-Term Incentive Plan (15) 10.16 Change in Control Agreement dated September 21, 2000, by and between Registrant and Ryan F. McKendrick (21) 10.17 Asset and Stock Purchase Agreement dated November 22, 1999 by and between the Registrant and BASF Aktiengesellschaft (19) 10.18 Change in Control Agreement dated September 28, 2000, by and between Registrant and Frank B. Wright, Jr. (21) 10.19 Change in Control Agreement dated September 22, 2000, by and between Registrant and Gary D. Morrison (21) 10.24 Special Retention Agreement dated September 18, 2000, by and between Registrant and Peter L. Maul ** (21) 10.25 Change in Control Agreement dated May 17, 2001, by and between Registrant and Gary L. Castagna. ** Portions of these exhibits have been omitted pursuant to a request for confidential treatment. ------------------- (1) Exhibit is incorporated by reference to the Registrant's Form 10 filed with the Securities and Exchange Commission on July 27, 1987. (2) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1988. (3) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. (4) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1992. (5) Exhibit is incorporated by reference to the Registrant's Form S-3 filed with the Securities and Exchange Commission on September 15, 1993. (6) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. (7) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1994. (8) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1994. (9) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1995. (10) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995. (11) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996. (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.
-23- (16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998. (18) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1999. (19) Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999. (20) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 2000. (21) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 2000. -24-