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, 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 0-15661 AMCOL INTERNATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-0724340 (State or other jurisdiction (IRS Employer Identification No.) of incorporation or organization) 1500 West Shure Drive, Suite 500, Arlington Heights, Illinois 60004-7803 (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 August 2, 2002 (Common stock, $.01 par value) 27,752,146 AMCOL INTERNATIONAL CORPORATION INDEX
Page No. -------- Part I - Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets - June 30, 2002 and December 31, 2001 1 Condensed Consolidated Statements of Operations - three and six months ended June 30, 2002 and 2001 2 Condensed Consolidated Statements of Comprehensive Income - three and six months ended June 30, 2002 and 2001 4 Condensed Consolidated Statements of Cash Flows - six months ended June 30, 2002 and 2001 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 19 Item 6 Exhibits and Reports on Form 8-K 19
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
----------------------------------------------------------------------------------------- June 30, December 31, ASSETS 2002 2001 (unaudited) * ----------------------------------------------------------------------------------------- Current assets: Cash $ 7,705 $ 10,320 Accounts receivable, net 55,973 43,641 Inventories 38,337 34,593 Prepaid expenses 6,559 4,419 Net current assets of discontinued operations -- 798 Current deferred tax assets 3,848 4,286 Income taxes receivable 1,190 3,120 -------- -------- Total current assets 113,612 101,177 -------- -------- Investment in and advances to joint ventures 13,665 13,219 -------- -------- Property, plant, equipment, and mineral rights and reserves: Land and mineral rights and reserves 9,739 9,293 Depreciable assets 199,741 181,120 -------- -------- 209,480 190,413 Less: accumulated depreciation 126,446 118,065 -------- -------- 83,034 72,348 -------- -------- Other assets: Goodwill 4,146 193 Intangible assets, net 370 210 Long-term prepayments and other assets 8,916 4,410 Net non-current assets of discontinued operations -- 311 Deferred tax assets 4,627 4,462 -------- -------- 18,059 9,586 -------- -------- $228,370 $196,330 ======== ======== -----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------- June 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001 (unaudited) * ----------------------------------------------------------------------------------------- Current liabilities: Accounts payable $ 14,119 $ 9,239 Accrued liabilities 21,989 21,844 -------- -------- Total current liabilities 36,108 31,083 -------- -------- Long-term debt 35,096 13,245 -------- -------- Minority interests in subsidiaries 767 523 Other liabilities 12,017 10,752 -------- -------- 12,784 11,275 -------- -------- Stockholders' equity: Common stock 320 320 Additional paid in capital 69,764 71,905 Retained earnings 94,618 91,018 Accumulated other comprehensive income(loss) 242 (2,688) -------- -------- 164,944 160,555 Less: Treasury stock 20,562 19,828 -------- -------- 144,382 140,727 -------- -------- $228,370 $196,330 ======== ======== -----------------------------------------------------------------------------------------
* Condensed from audited financial statements. The accompanying notes are an integral part of these condensed consolidated financial statements. 1 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
------------------------------------------------------------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, ---------------------------------------- 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------- Continuing Operations Net sales $135,876 $134,051 $78,535 $69,673 Cost of sales 103,955 102,304 59,267 52,986 -------- -------- ------- ------- Gross profit 31,921 31,747 19,268 16,687 General, selling and administrative expenses 25,143 23,716 13,113 11,790 -------- -------- ------- ------- Operating profit 6,778 8,031 6,155 4,897 -------- -------- ------- ------- Other income (expense): Investment income -- 2,579 -- 429 Change in value of interest rate swap -- (316) -- -- Interest expense, net (240) (1,654) (148) (883) Other, net (77) (4) (47) (79) -------- -------- ------- ------- (317) 605 (195) (533) -------- -------- ------- ------- Income before income taxes and equity in income of joint ventures 6,461 8,636 5,960 4,364 Income tax expense 2,325 2,862 2,149 1,512 -------- -------- ------- ------- Income before equity in income of joint ventures 4,136 5,774 3,811 2,852 Income from joint ventures 447 243 243 111 Minority interest in net loss of subsidiary 11 -- 8 -- -------- -------- ------- ------- Income from continuing operations 4,594 6,017 4,062 2,963 -------- -------- ------- ------- Discontinued Operations Income (loss) from operations (net of income taxes) -- (98) -- 44 -------- -------- ------- ------- Cummulative effect of change in accounting principle (net of taxes) -- (182) -- -- -------- -------- ------- ------- Net income $ 4,594 $ 5,737 $ 4,062 $ 3,007 ======== ======== ======= ======= -------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 2 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
------------------------------------------------------------------------------------------------------------------------ Six Months Ended Three Months Ended June 30, June 30, ----------------------------------------------------- 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------------------------------ Weighted average common shares outstanding 28,416,239 28,212,303 28,378,373 27,765,386 =========== =========== =========== =========== Weighted average common and common equivalent shares outstanding 30,688,126 30,850,945 30,559,763 30,638,342 =========== =========== =========== =========== Basic earnings (loss) per share: Continuing operations $ 0.16 $ 0.21 $ 0.14 $ 0.11 ----------- ----------- ----------- ----------- Discontinued operations - loss from operations -- -- -- -- ----------- ----------- ----------- ----------- Cummulative effect of change in accounting principle -- (0.01) -- -- ----------- ----------- ----------- ----------- Net income $ 0.16 $ 0.20 $ 0.14 $ 0.11 =========== =========== =========== =========== Diluted earnings (loss) per share: Continuing operations $ 0.15 $ 0.19 $ 0.13 $ 0.10 ----------- ----------- ----------- ----------- Discontinued operations - loss from operations -- -- -- -- ----------- ----------- ----------- ----------- Cummulative effect of change in accounting principle -- (0.01) -- -- ----------- ----------- ----------- ----------- Net income $ 0.15 $ 0.18 $ 0.13 $ 0.10 =========== =========== =========== =========== Dividends declared per share $ 0.035 $ 0.025 $ 0.020 $ 0.015 =========== =========== =========== =========== ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (In thousands)
---------------------------------------------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, ------------------------------------- 2002 2001 2002 2001 ---------------------------------------------------------------------------------- Net income $4,594 $ 5,737 $4,062 $3,007 Other comprehensive income (loss): Foreign currency translation adjustment 2,930 (2,649) 3,314 65 ------ ------- ------ ------ Comprehensive income $7,524 $ 3,088 $7,376 $3,072 ====== ======= ====== ====== ----------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
----------------------------------------------------------------------------------------------------- Six Months Ended June 30, -------------------- 2002 2001 ----------------------------------------------------------------------------------------------------- Cash flow from operating activities: Income from continuing operations $ 4,594 $ 6,017 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Depreciation, depletion, and amortization 8,801 8,236 Changes in assets and liabilities, net of effects of acquisitions: Increase in current assets (8,770) (3,168) Decrease in current liabilities (639) (3,203) Increase in noncurrent liabilities 1,264 272 Other 736 43 -------- --------- Net cash provided by operating activities of continuing operations 5,986 8,197 -------- --------- Net cash provided by discontinued operations -- 1,291 -------- --------- Cash flow from investing activities: Tax payments related to the absorbent polymers segment sale -- (127,435) Acquisition of land, mineral reserves, and depreciable assets (7,342) (4,466) Acquisitions (16,805) -- Other (4,276) (130) -------- --------- Net cash used in investing activities (28,423) (132,031) -------- --------- Cash flow from financing activities: Net change in outstanding debt 21,851 3,423 Proceeds from sales of treasury stock 1,140 813 Purchases of treasury stock (4,015) (5,967) Cummulative effect of change in accounting principle (net of tax) -- (182) Dividends paid (994) (707) Other 244 -- -------- --------- Net cash provided by (used in) financing activities 18,226 (2,620) -------- --------- Effect of foreign currency rate changes on cash 1,596 (2,380) Net decrease in cash and cash equivalents (2,615) (127,543) Cash and cash equivalents at beginning of period 10,320 176,750 -------- --------- Cash and cash equivalents at end of period $ 7,705 $ 49,207 ======== ========= Supplemental disclosures of cash flow information: Cash paid for: Interest $ 210 $ 1,454 ======== ========= Income taxes $ 702 $ 130,497 ======== ========= -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED 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, 2001, has been prepared by management and are unaudited. The condensed consolidated balance sheet as of December 31, 2001, has been derived from, but does not include all the disclosures contained in, the audited consolidated financial statements for the year ended December 31, 2001. 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 2001 Form 10-K which accompanies the 2001 Corporate Report. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Certain items in the 2001 condensed consolidated financial statements have been reclassified to comply with the presentation for 2002. Note 2: INVENTORIES Inventories at June 30, 2002 have been valued using the same methods as at December 31, 2001. The composition of inventories at June 30, 2002 and December 31, 2001, was as follows:
--------------------------------------------------------------------------------- June 30, December 31, 2002 2001 -------- ------------ Advance mining $ 2,286 $ 1,872 Crude stockpile inventories 10,693 11,524 In-process inventories 13,639 11,498 Other raw material, container, and supplies inventories 11,719 9,699 ------- ------- $38,337 $34,593 ======= ======= ---------------------------------------------------------------------------------
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 during each period. Diluted earnings per share were computed by dividing net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options outstanding during each period.
---------------------------------------------------------------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, ----------------------- ----------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Weighted average of common shares outstanding 28,416,239 28,212,303 28,378,373 27,765,386 Dilutive impact of stock options 2,271,887 2,638,642 2,181,390 2,872,956 ---------- ---------- ---------- ---------- Weighted average of common and common equivalent shares for the period 30,688,126 30,850,945 30,559,763 30,638,342 ========== ========== ========== ========== Common shares outstanding 28,220,874 27,836,570 28,220,874 27,836,570 ========== ========== ========== ========== ----------------------------------------------------------------------------------------------------
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 three and six months ended June 30, 2002 and 2001. ---------------------------------------------------------------------- Six Months Ended Three Months Ended June 30, June 30, ------------------- ------------------ 2002 2001 2002 2001 -------- -------- ------- ------- Business Segment: Revenues: Minerals $ 78,828 $ 75,277 $45,138 $36,440 Environmental 46,519 47,688 28,026 27,575 Transportation 15,462 16,075 8,078 8,513 Intersegment shipping (4,933) (4,989) (2,707) (2,855) -------- -------- ------- ------- Total $135,876 $134,051 $78,535 $69,673 ======== ======== ======= ======= Operating profit (loss): Minerals $ 6,521 $ 7,330 $ 4,304 $ 3,653 Environmental 5,521 6,732 4,582 4,052 Transportation 455 669 229 362 Corporate (5,719) (6,700) (2,960) (3,170) -------- -------- ------- ------- Total $ 6,778 $ 8,031 $ 6,155 $ 4,897 ======== ======== ======= ======= June 30, 2002 Dec. 31, 2001 ------------- ------------- Assets: Minerals $133,169 $106,391 Environmental 68,192 65,216 Transportation 2,225 1,282 Corporate 24,480 22,332 Discontinued operations -- 1,109 -------- -------- Total $228,066 $196,330 ======== ======== ---------------------------------------------------------------------- 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. Through June 15, 2001, the Company was a party to an interest rate swap agreement with a bank in the notional amount of $15 million. The agreement gave the bank an option to extend the term. The interest rate swap agreement changed 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 called for the Company to make fixed rate payments and to receive variable rate cash flows based on the notional amount. This means the Company received funds if the variable rate (LIBOR) increased above the fixed rate, and paid the other party if LIBOR decreased below the fixed rate during the term of the agreement. Interest rate differentials were 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. The Company concluded that SFAS No. 133 required the change in value of this agreement to be recognized 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 change in the fair value of the swap and option during the period through June 30, 2001 of $316 has been reflected in operating results for the period. Note 6: ACQUISITIONS On April 30, 2002, the Company acquired all of the outstanding stock of Colin Stewart Minchem, Ltd. (CSM), a specialty minerals and chemical company located in the United Kingdom, in exchange for cash. The aggregate purchase price was $15,164. CSM supplies intermediate products, industrial minerals, inorganic chemicals, and additives to customers operating in the laundry detergent, packaging, oil exploration and water treatment markets. The acquisition of CSM provides an additional platform for the Company to expand its global operations and presence. The results of CSM's operations have been included in the condensed consolidated financial statements from the acquisition date. The following tables summarize the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition and unaudited pro forma results of operations as if the acquisition of CSM had occurred on January 1, 2001. The unaudited pro forma information is not necessarily indicative of the combined results that would have occurred had the acquisition taken place at the beginning of the periods presented, nor is it necessarily indicative of future results. 9 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) -------------------------------------------------------------------------------- At April 30, 2002 -------------------------------------------------------------------------------- Current Assets $ 5,940 Fixed Assets 10,520 Goodwill 3,779 ------- Total assets acquired $20,239 ------- Current Liabilities $ 3,023 Other Liabilities 2,052 ------- Total liabilities assumed $ 5,075 ------- ------- Net assets acquired $15,164 ======= --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------- Pro-Forma Pro-Forma Pro-Forma Pro-Forma Six Months Ended Six Months Ended Three Months Ended Three Months Ended June 30, June 30, June 30, June 30, ----------------------------------------------------------------------------- 2002 2001 2002 2001 ----------------------------------------------------------------------------------------------------------------- Net sales $145,304 $148,193 $80,892 $76,744 Income from continuing operations $ 5,482 $ 7,349 $ 4,284 $ 3,629 Net income 5,482 7,069 4,284 3,673 Basic earnings per share 0.19 0.26 0.15 0.13 Diluted earnings per share 0.18 0.23 0.14 0.12 -----------------------------------------------------------------------------------------------------------------
The purchase price allocation has not been finalized as management is in the process of analyzing the fair values of the acquired assets and liabilities. Note 7: DISCONTINUED OPERATIONS In 2000 the Company announced its intention to close its U.K. cat litter business. Certain assets used in the business were sold to various outside parties for cash proceeds of $720. The closure was completed in 2001. In the fourth quarter of 2001, the Company announced the sale of its U.K. Metalcasting operations. The U.K. cat litter and Metalcasting businesses were both components of the Company's minerals segment. The consolidated financial statements have been reclassified to report separately the net assets and operating results of the U.K. metalcasting and cat litter business for all periods presented. Summary operating results for 2001 were as follows:
----------------------------------------------------------------------------------- Six Months Ended Three Months Ended U.K. metalcasting and cat litter businesses June 30, June 30, ------------------------------------- 2001 2001 ----------------------------------------------------------------------------------- Net sales $5,152 $2,352 Operating loss (543) (184) Income tax benefit 243 190 Net loss (98) 44 -----------------------------------------------------------------------------------
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. Three Months Ended June 30, 2002 vs. 2001 Net sales for the three month period were $78.5 million, which represented an increase of $8.9 million, or 12.7% from 2001 levels. Mineral segment revenues accounted for $8.7 million of the increase. As previously reported, the Company acquired Colin Stewart Minchem Limited (CSM), a U.K.-based specialty minerals company, effective from May 1, 2002. Revenues from CSM accounted for 53% of the increase in sales from the 2001 period. Further discussion on sales is included in the segment analysis which follows. Gross profit increased by $2.6 million, or 15.5%, to $19.3 million in the second quarter of 2002. Increased revenues, as reported above, from the minerals business units resulted in $1.4 million of gross profit improvement. Improved production costs from the domestic operations of the Company's environmental segment accounted for the remaining increase in gross profit from the prior year period. Gross margin for the period was 24.5% compared to 24.0% in the previous year's quarter. General, selling and administrative expenses increased by $1.3 million for the second quarter of 2002 to $13.1 million. Overheads associated with the CSM business contributed approximately 40% of the increase. Approximately 50% of the increase in expenses was attributed to the environmental segment. Operating profit for the period was $6.2 million which was an increase of $1.3 million, or approximately 26%, from the second quarter of 2002. The increase followed the improvement in sales and gross profit. Investment income of $0.4 million in the second quarter of 2001 was attributed to the temporary investment of the remaining proceeds from the sale of the absorbent polymers segment which was sold in June 2000. The Company utilized these proceeds to reduce its long-term debt in September of 2001. Consequently, interest expense in the second quarter of 2002 declined by $0.7 million, or 83%, from the prior year quarter to $0.1 million. Income from joint ventures was $0.2 million in the current year period compared with $0.1 million in last year's second quarter. The increase was attributed to improved earnings recorded from an investment in an Indian minerals company. The Company owns approximately 20% of the shares in this company. Net income for the second quarter was $4.1 million compared with $3.0 million in the prior year period. The increase was primarily attributed to higher operating profit and lower net interest expense in the current year period. 11 Segment Analysis ------------------------------------------------------------------------------ Quarter Ended June 30, Minerals ------------------------------------------------- 2002 2001 2002 vs. 2001 ------------------------------------------------------------------------------ (Dollars in Thousands) ------------------------------------------------------------------------------ Product sales $40,741 90.3% $33,492 91.9% Shipping revenue 4,397 9.7% 2,948 8.1% ------- ----- ------- ----- Net sales 45,138 100.0% 36,440 100.0% 8,698 23.9% ------- ----- ------- ----- Cost of sales - product 32,314 71.6% 26,474 72.7% Cost of sales - shipping 4,397 9.7% 2,948 8.1% ------- ----- ------- ----- Cost of sales 36,711 81.4% 29,422 80.8% ------- ----- ------- ----- Gross profit 8,427 18.6% 7,018 19.2% 1,409 20.1% General, selling and administrative expenses 4,123 9.1% 3,365 9.2% 758 22.5% ------- ----- ------- ----- ----- Operating profit 4,304 9.5% 3,653 10.0% 651 17.8% ------------------------------------------------------------------------------ Effective April 30, 2002, the Company acquired a U.K. specialty minerals business, Colin Stewart Minchem (CSM). The segment includes two months of operating results for CSM in the second quarter of 2002. A pro forma presentation of the operating results of the Company assuming the CSM acquisition had been completed on January 1, 2001 is included in Note 6 to the condensed consolidated financial statements included with this filing. Approximately 53% of the increase in sales for the second quarter of 2002 was attributed to CSM. Higher revenues from the metalcasting and export business units contributed an increase of 16% and 12%, respectively, of the improvement in sales. The increase in gross profit primarily followed the improvement in sales. Gross margin declined, however, by 60 basis points primarily due to lower gross profits generated from the pet products business. General, selling and administrative expenses increased primarily due to CSM, increased information technology costs and increased research and market development costs associated with the segment's health and beauty solutions business. -------------------------------------------------------------------------------- Quarter Ended June 30, Environmental --------------------------------------------------- 2002 2001 2002 vs. 2001 -------------------------------------------------------------------------------- (Dollars in Thousands) -------------------------------------------------------------------------------- Product sales $26,139 93.3% $25,367 92.0% Shipping revenue 1,887 6.7% 2,208 8.0% ------- ----- ------- ----- Net sales 28,026 100.0% 27,575 100.0% 451 1.6% ------- ----- ------- ----- Cost of sales - product 16,117 57.5% 16,602 60.2% Cost of sales - shipping 1,887 6.7% 2,208 8.0% ------- ----- ------- ----- Cost of sales 18,004 64.2% 18,810 68.2% Gross profit 10,022 35.8% 8,765 31.8% 1,257 14.3% General, selling and administrative expenses 5,440 19.4% 4,713 17.1% 727 15.4% ----- ----- ------- ----- ----- Operating profit 4,582 16.4% 4,052 14.7% 530 13.1% -------------------------------------------------------------------------------- 12 Net sales were relatively the same as the prior year period. Sales from the segment's European business units were $1.1 million higher than the 2001 quarter, however, this was largely offset by lower sales in the U.S. and Asia. Gross margin improved by 400 basis points from the prior year period. Lower unit production costs at the segment's domestic operations largely contributed to the gross profit and margin improvement. The lower unit production costs were the result of favorable raw material pricing and higher production volumes. General, selling and administrative expenses increased due to higher compensation and benefit expenses, allocated information technology costs, marketing and promotion costs, and research and development spending. ----------------------------------------------------------------------------- Quarter Ended June 30, Transportation ------------------------------------------------ 2002 2001 2002 vs. 2001 ----------------------------------------------------------------------------- (Dollars in Thousands) ----------------------------------------------------------------------------- Net sales $8,078 100.0% $8,513 100.0% $(435) -5.1% Cost of sales 7,259 89.9% 7,609 89.4% ------ ----- ------ ----- Gross profit 819 10.1% 904 10.6% (85) -9.4% General, selling and administrative expenses 590 7.3% 542 6.4% 48 8.9% ------ ----- ------ ----- ----- Operating profit 229 2.8% 362 4.2% (133) -36.7% ----------------------------------------------------------------------------- Net sales declined due to lower customer shipments. Increased general, selling and administrative expenses were associated with higher information technology costs. ------------------------------------------------------------------ Quarter Ended June 30, Corporate --------------------------------- 2002 2001 2002 vs. 2001 ------------------------------------------------------------------ (Dollars in Thousands) ------------------------------------------------------------------ Intersegment shipping sales $(2,707) $(2,855) Intersegment shipping costs (2,707) (2,855) ------- ------- Gross profit -- -- Corporate general, selling and administrative expenses 1,889 2,081 (192) -9.2% Nanocomposite business development expenses 1,071 1,089 (18) -1.7% ------- ------- ---- Operating loss (2,960) (3,170) 210 6.6% ------------------------------------------------------------------ Intersegment shipping sales and costs are related to billings from the transportation segment to the domestic minerals and environmental segments for services. These services are invoiced to the minerals and environmental segments at arms-length rates and those costs are subsequently charged to customers. Intersegment sales and costs reported above reflect the elimination of these transactions. Approximately 60% of the decline in corporate administrative expenses in the current year period was associated with increased allocation of these costs to the minerals, environmental and transportation segments. The remaining decrease was attributed to lower personnel and legal costs. Nanocomposite business development expenses are comprised of production, research and development and marketing costs. Expenses were relatively flat compared to the prior year second quarter. 13 Six Months Ended June 30, 2002 vs. 2001 Net sales for the six month period ended June 30, 2002 increased to $135.9 million, or 1.4%, from the prior year period. Mineral segment sales increased by $3.6 million while environmental and transportation segment revenues decreased by $1.2 million and $0.6 million, respectively. CSM contributed $4.7 million in sales to the mineral segment for the 2002 six month period. As previously reported in this item, the acquisition of CSM was effective from April 30, 2002. Gross profit increased by $0.2 million, or less than 1%, for the six month period. Lower gross profit from the pet products business largely offset contributions from CSM. Gross margin was 23.5% for the six months ended June 30, 2002 compared to 23.7% for the prior year period. General, selling and administrative expenses increased by $1.5 million, or 6.0%, from the prior year period. Overhead expenses associated with CSM accounted for approximately 35% of the increase. The Company also increased research and development and marketing expenses during the six months ended June 30, 2002 compared to the prior year period. Operating profit declined by $1.3 million to $6.8 million for the six months ended June 30, 2002 compared to the prior year period. The decline in operating profit followed the increased general, selling and administrative expenses incurred in the current year period. Investment income of $2.6 million recorded in the six months ended June 30, 2001 was attributed to the temporary investment of the remaining proceeds from the sale of the absorbent polymers segment which was sold in June 2000. The Company utilized these proceeds to reduce its long-term debt in September of 2001. Consequently, interest expense for the six months ended June 30, 2002 declined by $1.4 million, or 85%, from the prior year quarter to $0.2 million. In the first quarter of 2001 the Company recorded a loss of $316 thousand due to the change in value of an interest rate swap contract. The loss was recognized under the new requirements of Statement on 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. The Company also reported a loss on the cumulative effect of a change in accounting principle of $182 thousand in the first quarter of 2001 that was associated with implementation of this accounting pronouncement. The effective income tax rate for the six months ended June 30, 2002 was 36% compared to 33% for the prior year period. The increased tax rate in the current year was attributed to a greater portion of earnings generated in countries with higher income tax rates. The loss from discontinued operations reported in the 2001 period reflects the net loss incurred, after income taxes, in the UK metalcasting and cat litter businesses. The UK metalcasting and cat litter businesses were disposed of in the fourth quarter and first quarter of 2001, respectively. Income from joint ventures was $0.4 million for the six months ended June 30, 2002 compared with $0.2 million for the prior year period. The increase was attributed to improved earnings recorded 14 from an investment in an Indian minerals company. The Company owns approximately 20% of the shares in this Indian minerals company. Net income was $4.6 million for the six months ended June 30, 2002 compared to $5.7 million for the prior year period. The decline in net income followed lower operating profit reported in the current year period. Segment Analysis ------------------------------------------------------------------------------ Six Months Ended June 30, Minerals ------------------------------------------------- 2002 2001 2002 vs. 2001 ------------------------------------------------------------------------------ (Dollars in Thousands) ------------------------------------------------------------------------------ Product sales $71,801 91.1% $67,360 89.5% Shipping revenue 7,027 8.9% 7,917 10.5% ------- ----- ------- ----- Net sales 78,828 100.0% 75,277 100.0% 3,551 4.7% ------- ----- ------- ----- Cost of sales - product 57,805 73.3% 53,521 71.1% Cost of sales - shipping 7,027 8.9% 7,917 10.6% ------- ----- ------- ----- Cost of sales 64,832 82.2% 61,438 81.7% ------- ----- ------- ----- Gross profit 13,996 17.8% 13,839 18.3% 157 1.1% General, selling and administrative expenses 7,475 9.5% 6,509 8.6% 966 14.8% ------- ----- ------- ----- ----- Operating profit 6,521 8.3% 7,330 9.7% (809) -11.0% ------------------------------------------------------------------------------ CSM contributed sales of $4.7 million for the two months this business was included in the segment's operating results. Excluding CSM, mineral segment revenues declined by $1.1 million for the six months ended June 30, 2002. The segment recorded lower sales in its oil drilling, export and pet products businesses which totaled approximately $3.0 million. Sales from the segment's metalcasting and Asian business units increased by a total of approximately $2.0 million from the prior year period. Gross profit, after excluding CSM, declined by approximately $1.3 million from the prior year period. Higher production costs associated with the pet products business were the primary cause for the lower gross profit in the current year period. General, selling and administrative expenses increased primarily from the inclusion of overhead associated with CSM. In addition, the segment incurred higher research and development and marketing costs in its health and beauty solutions business in the current year period. 15 -------------------------------------------------------------------------------- Six Months Ended June 30, Environmental --------------------------------------------------- 2002 2001 2002 vs. 2001 -------------------------------------------------------------------------------- (Dollars in Thousands) -------------------------------------------------------------------------------- Product sales $43,359 93.2% $44,236 92.8% Shipping revenue 3,160 6.8% 3,452 7.2% ------- ----- ------- ----- Net sales 46,519 100.0% 47,688 100.0% (1,169) -2.5% ------- ----- ------- ----- Cost of sales - product 27,036 58.1% 28,035 58.8% Cost of sales - shipping 3,160 6.8% 3,452 7.2% ------- ----- ------- ----- Cost of sales 30,196 64.9% 31,487 66.0% Gross profit 16,323 35.1% 16,201 34.0% 122 0.8% General, selling and administrative expenses 10,802 23.2% 9,469 19.9% 1,333 14.1% ------- ----- ------- ----- ------ Operating profit 5,521 11.9% 6,732 14.1% (1,211) -18.0% -------------------------------------------------------------------------------- The decline in sales was primarily attributed to lower volume levels in the segment's U.S. drilling products and building materials business units. Gross profit remained relatively flat compared to the prior year period. Improved unit production costs at the segment's U.S. production operations offset the decline associated with lower sales. General, selling and administrative expenses increased due to higher compensation and benefit expenses, allocated information technology costs, marketing and promotion costs, and research and development spending. ------------------------------------------------------------------------------- Six Months Ended June 30, Transportation -------------------------------------------------- 2002 2001 2002 vs. 2001 ------------------------------------------------------------------------------- (Dollars in Thousands) ------------------------------------------------------------------------------- Net sales $15,462 100.0% $16,075 100.0% $(613) -3.8% Cost of sales 13,860 89.7% 14,368 89.3% ------- ----- ------- ----- Gross profit 1,602 10.3% 1,707 10.7% (105) -6.2% General, selling and administrative expenses 1,147 7.4% 1,038 6.5% 109 10.5% ------- ----- ------- ----- ----- Operating profit 455 2.9% 669 4.2% (214) -32.0% ------------------------------------------------------------------------------- Net sales declined due to lower customer shipments. Increased general, selling and administrative expenses were associated with higher information technology costs. -------------------------------------------------------------------------------- Six Months Ended June 30, Corporate --------------------------------- 2002 2001 2002 vs. 2001 -------------------------------------------------------------------------------- (Dollars in Thousands) -------------------------------------------------------------------------------- Intersegment shipping sales $(4,933) $(4,989) Intersegment shipping costs (4,933) (4,989) ------- ------- Gross profit -- -- Corporate general, selling and administrative expenses 3,479 4,286 (807) -18.8% Nanocomposite business development expenses 2,240 2,414 (174) -7.2% ------- ------- ---- Operating loss (5,719) (6,700) 981 14.6% -------------------------------------------------------------------------------- 16 Intersegment shipping sales and costs are related to billings from the transportation segment to the domestic minerals and environmental segments for services. These services are invoiced to the minerals and environmental segments at arms-length rates and those costs are subsequently charged to customers. Intersegment sales and costs reported above reflect the elimination of these transactions. Approximately 60% of the decline in corporate administrative expenses in the current year period were associated with increased allocation of these costs to the minerals, environmental and transportation segments. The remaining decrease was attributed to lower personnel and legal costs. Nanocomposite business development expenses are comprised of production, research and development and marketing costs. The decline in expenses is associated with a restructuring of the business that was implemented in the second quarter of 2001. Liquidity and Capital Resources Working capital was $77.5 million as of June 30, 2002 compared to $70.1 million at December 31, 2001. The current ratio was 3.15-to-1 as of June 30, 2002 compared to 3.26-to-1 at December 31, 2001. For the six months ended June 30, 2002, cash flow from operating activities was $6.0 million compared to $8.2 million for the prior year period. Lower net income, a large increase in accounts receivable in the minerals business, and the addition of working capital from CSM contributed to lower operating cash flows in the six month period. The increase in accounts receivable was attributed to large export shipments from the U.S. which were completed at the end of the second quarter. The Company invested $7.3 million in capital expenditures in the current year period compared to $4.5 million in the prior year period. A total of $16.8 million, including transaction costs, was utilized for acquisition of CSM and the net assets of FNG Industries. Note 6 of the condensed consolidated financial statements presents further information related to the CSM acquisition. A total of 654 thousand shares of the Company's common stock were repurchased at an aggregate value of $4.0 million under the plan authorized by the Company's board of directors in February 2001 and May 2002. Approximately $8.2 million remains in the stock repurchase authorization as of June 30, 2002. Dividends paid in the six month period were $1.0 million. The Company received approximately $1.1 million from employees, directors and officers upon exercise of stock options granted under incentive and non-qualified plans. Outstanding debt as of June 30, 2002 was $35.1 million which was an increase of $21.9 million from December 31, 2001. Acquisitions accounted for a majority of the increase in long-term debt in the six month period. Cash totaled $7.7 million compared to $10.3 million at December 31, 2001. Long-term debt represented 20% of total capitalization as of June 30, 2002 compared to 9% as of December 31, 2001. The Company has a revolving credit facility of $125 million with financial institutions that matures in October 2003. As of June 30, 2002 the Company had approximately $97 million in unused, committed credit lines. The credit facilities combined with funds generated from operations are 17 expected to be adequate to fund capital expenditures and other investments approved by the board of directors at this time. New Accounting Pronouncements In July 2001, Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Intangible Assets, was issued. SFAS No. 142 applies to all goodwill and identified intangible assets acquired in a business combination. Under the new standard, all goodwill, including that acquired before initial application of the standard, will no longer be amortized, but should be tested for impairment at least annually. Identified intangible assets will continue to be amortized over their estimated useful lives and reviewed for impairment in accordance with SFAS No. 144. Within six months of initial application of the new standard, a transitional impairment test must be performed on all goodwill. Any impairment loss recognized as a result of the transitional impairment test will be reported as a change in accounting principle. In addition to the transitional impairment test, the required annual impairment test must also be performed in the year of adoption of SFAS No. 142. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and must be adopted as of the beginning of a fiscal year. The Company adopted SFAS No. 142 effective January 1, 2002. The adoption of SFAS No. 142 had no impact on the financial statements. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003. Management is currently evaluating the impact of the adoption of SFAS 143 on the Company's consolidated financial statements. 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, and 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 18 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. Item 3: Quantitative and Qualitative Disclosure About Market Risk The information required by this item is provided in Footnote 5 "Derivatives" under Item 1. There have been no material changes in the Company's market risk during the six months ended June 30, 2002. See disclosures as of December 31, 2001 in the Form 10-K, Item 7A. 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 16, 2002. (b) At the Annual Stockholders Meeting, the Stockholders voted on the following uncontested matter: each nominee for director was elected by a vote of the Stockholders as follows: Election of the below-named Nominees of the Board of Directors of AMCOL International Corporation: ------------------------------------------ For Withheld ------------------------------------------ John Hughes 20,514,206 70,659 Clarence O. Redman 20,518,771 66,095 Lawrence E. Washow 20,514,506 70,359 Audrey L. Weaver 20,518,471 66,395 ------------------------------------------ Item 6: Exhibits and Reports on Form 8-K (a) See Index to Exhibits immediately following the signature page. (b) No reports on Form 8-K were filed during the quarter ended June 30, 2002. 19 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 12, 2002 /s/ Lawrence E. Washow ------------------------------------------------- Lawrence E. Washow President and Chief Operating Officer Date: August 12, 2002 /s/ Gary L. Castagna ------------------------------------------------- Gary L. Castagna Senior Vice President and Chief Financial Officer and Principal Accounting Officer 20 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) 10.9 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), as amended (21) 10.17 Asset and Stock Purchase Agreement dated November 22, 1999 by and between the Registrant and BASF Aktiengesellschaft (19)** 10.26 Employment Agreement dated March 15, 2002 by and between Registrant and Gary D. Morrison (22) 10.27 Employment Agreement dated March 15, 2002 by and between Registrant and Peter M. Maul (22) 10.28 Employment Agreement dated March 15, 2002 by and between Registrant and Gary Castagna (22) 10.29 Employment Agreement dated March 15, 2002 by and between Registrant and Ryan F. McKendrick (22) 10.30 Employment Agreement dated March 15, 2002 by and between Registrant and Lawrence E. Washow (22) 99.10 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350, dated August 12, 2002 ** 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. (16) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998. 21 (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 S-8 (File 333-68664) filed with the Securities and Exchange Commission on August 30, 2001. (22) Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended March 31, 2002. 22