-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EafjUul8UGoxZsnd/k6wXjhZSH2w26IDy0Q9MgCdEIbxsllqVjjMgg82vRSxs/sf MvWzj2rZ5/jj8jqzft1bwA== 0001275287-05-001272.txt : 20050414 0001275287-05-001272.hdr.sgml : 20050414 20050414135845 ACCESSION NUMBER: 0001275287-05-001272 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20050414 DATE AS OF CHANGE: 20050414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMCOL INTERNATIONAL CORP CENTRAL INDEX KEY: 0000813621 STANDARD INDUSTRIAL CLASSIFICATION: MINING, QUARRYING OF NONMETALLIC MINERALS (NO FUELS) [1400] IRS NUMBER: 360724340 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14447 FILM NUMBER: 05750340 BUSINESS ADDRESS: STREET 1: 1500 W SHURE DR CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 BUSINESS PHONE: 8473948730 MAIL ADDRESS: STREET 1: 1500 W SHURE DR CITY: ARLINGTON HEIGHTS STATE: IL ZIP: 60004-7803 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN COLLOID CO DATE OF NAME CHANGE: 19920703 10-Q/A 1 ai2409.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q/A (Amendment No. 2) (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from_________ to____________ Commission file number 0-15661 AMCOL INTERNATIONAL CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-0724340 - ------------------------------- --------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12(b)-2 of the Exchange Act). Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at October 31, 2004 - ------------------------------ ------------------------------- (Common stock, $.01 par value) 29,360,045 Shares ================================================================================ AMCOL INTERNATIONAL CORPORATION QUARTERLY REPORT ON FORM 10-Q/A FOR THE QUARTER ENDED SEPTEMBER 30, 2004 EXPLANATORY NOTE AMCOL International Corporation (the "Company") originally filed its quarterly report on Form 10-Q for the quarterly period ended September 30, 2004, with the Securities and Exchange Commission (the "SEC") on November 8, 2004 (the "Original Filing"). As a result of a typographical error made in the condensed consolidated balance sheets for the periods ended September 30, 2004 and December 31, 2003 in the Original Filing, the Company filed an amended quarterly report on Form 10-Q/A with the SEC on November 9, 2004 (the "First Amended Filing"). This Amendment No. 2 on Form 10-Q/A (this "Form 10-Q/A") to the Original Filing, as amended by the First Amended Filing, is being filed solely to reflect the restatement of the Company's condensed consolidated financial information included in Item 1 of such filings. In addition, Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 2 and the discussion of Controls and Procedures in Item 4 have been revised in light of such restatement. As disclosed in the Current Report of Form 8-K filed by the Company on March 15, 2005, the audit committee of the board of directors of the Company determined that restatement of the condensed consolidated financial statements included in the Original Filing and First Amended Filing is required in order to increase net income due to (i) the prior failure to recognize expected federal income tax refunds relating to certain deductions and credits, and (ii) the prior failure to make certain adjustments to deferred income tax assets and income taxes payable by a wholly-owned subsidiary in the United Kingdom.. The Company also determined it necessary to increase retained earnings in its third quarter 2004 condensed consolidated financial information due to the failure to recognize expected federal income tax refunds relating to certain state tax deductions and the above-referenced adjustments to deferred income tax assets and income taxes payable in the United Kingdom. In addition, the Company determined that certain other nonmaterial adjustments, reclassifications and revised accounting estimates were appropriate to include in its restated condensed consolidated financial information for the quarter ended September 30, 2004. Further information on the restatement, including a more detailed description of each of the foregoing adjustments can be found in Note 2, entitled "Restatement," to the condensed consolidated financial information included in Item 1 of this Form 10-Q/A. This Form 10-Q/A only amends and restates Items 1, 2 and 4 of Part I of the First Amended Filing, in each case, solely as a result of, and to reflect, the restatement and adjustments discussed above and, in the case of Item 4 of Part I, the consideration of internal control over financial reporting in connection therewith, and no other information in the First Amended Filing is amended hereby. In addition, pursuant to the rules of the SEC, Item 6 of Part II of the First Amended Filing has been amended to contain currently-dated certifications from the Company's Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. The certifications of the Company's Chief Executive Officer and Chief Financial Officer are attached to this Form 10-Q/A as Exhibits 31.01, 31.02, 32.01 and 32.02. Except for the foregoing amended information, this Form 10-Q/A continues to speak as of the date of the First Amended Filing, and the Company has not updated the disclosure contained herein to reflect events that occurred at a later date. AMCOL INTERNATIONAL CORPORATION INDEX PAGE NO. -------- Part I - Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheets - September 30, 2004 and December 31, 2003 (restated) 2 Condensed Consolidated Statements of Operations - three and nine months ended September 30, 2004 and 2003 (restated) 4 Condensed Consolidated Statements of Comprehensive Income - three and nine months ended September 30, 2004 and 2003 (restated) 5 Condensed Consolidated Statements of Cash Flows - nine months ended September 30, 2004 and 2003 (restated) 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (revised) 20 Item 3 Quantitative and Qualitative Disclosures About Market Risk 32 Item 4 Controls and Procedures (revised) 32 Part II - Other Information Item 2e Company Repurchases of Company Stock 34 Item 6 Exhibits and Reports on Form 8-K 36 1 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2004 2003 (UNAUDITED) * (RESTATED) ASSETS (NOTE 2) - ------------------------------------------------------------ ------------- ------------- Current assets: Cash $ 17,896 $ 13,525 Accounts receivable, net 91,166 60,997 Inventories 55,299 46,182 Prepaid expenses 8,227 5,108 Current deferred tax assets 6,181 3,639 Income taxes receivable 5,686 14,123 ------------- ------------- Total current assets 184,455 143,574 ------------- ------------- Investment in and advances to joint ventures 14,871 13,068 ------------- ------------- Property, plant, equipment, and mineral rights and reserves: Land and mineral rights 10,585 10,275 Depreciable assets 238,779 226,221 ------------- ------------- 249,364 236,496 Less: accumulated depreciation 162,345 149,500 ------------- ------------- 87,019 86,996 ------------- ------------- Other assets: Goodwill 17,233 5,633 Intangible assets, net 3,394 4,345 Deferred tax assets 5,872 5,314 Other assets 7,243 6,399 ------------- ------------- 33,742 21,691 ------------- ------------- $ 320,087 $ 265,329 ============= =============
2 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 2004 2003 (UNAUDITED) * (RESTATED) LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 2) - ------------------------------------------------------------ ------------- ------------- Current liabilities: Notes payable $ 63 $ 844 Accounts payable 24,565 20,365 Accrued liabilities 36,287 26,499 ------------- ------------- Total current liabilities 60,915 47,708 ------------- ------------- Long-term debt 29,766 9,006 ------------- ------------- Minority interests in subsidiaries 123 116 Other liabilities 19,052 17,049 ------------- ------------- 19,175 17,165 ------------- ------------- Stockholders' equity: Common stock 320 320 Additional paid in capital 68,067 67,513 Retained earnings 150,740 132,179 Accumulated other comprehensive income 8,792 8,372 ------------- ------------- 227,919 208,384 Less: Treasury stock 17,688 16,934 ------------- ------------- 210,231 191,450 ------------- ------------- $ 320,087 $ 265,329 ============= =============
* Condensed from audited financial statements. The accompanying notes are an integral part of these condensed consolidated financial statements. 3 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2004 2003 2004 2003 (RESTATED) (RESTATED) (NOTE 2) (NOTE 2) ------------ ------------ ------------ ------------ Net sales $ 346,908 $ 278,400 $ 124,066 $ 101,760 Cost of sales 257,155 205,001 91,644 74,101 ------------ ------------ ------------ ------------ Gross profit 89,753 73,399 32,422 27,659 General, selling and administrative expenses 61,137 50,860 22,147 17,717 ------------ ------------ ------------ ------------ Operating profit 28,616 22,539 10,275 9,942 ------------ ------------ ------------ ------------ Other income (expense): Interest expense, net (587) (293) (197) (91) Other, net (69) 271 (151) 107 ------------ ------------ ------------ ------------ (656) (22) (348) 16 ------------ ------------ ------------ ------------ Income before income taxes and equity in income of joint ventures 27,960 22,517 9,927 9,958 Income tax expense (benefit) 3,473 7,656 (2,206) 3,387 ------------ ------------ ------------ ------------ Income before equity in income of joint ventures 24,487 14,861 12,133 6,571 Income from joint ventures 805 410 336 61 ------------ ------------ ------------ ------------ Net income $ 25,292 $ 15,271 $ 12,469 $ 6,632 ============ ============ ============ ============ Weighted average common shares outstanding 29,110,751 28,176,170 29,148,594 28,421,103 ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding 30,774,503 29,841,379 30,778,272 30,410,215 ============ ============ ============ ============ Basic earnings per share $ 0.87 $ 0.54 $ 0.43 $ 0.23 ============ ============ ============ ============ Diluted earnings per share $ 0.82 $ 0.51 $ 0.41 $ 0.22 ============ ============ ============ ============ Dividends declared per share $ 0.23 $ 0.11 $ 0.09 $ 0.04 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------------- ---------------------------- 2004 2003 2004 2003 (RESTATED) (RESTATED) (NOTE 2) (NOTE 2) ------------ ------------ ------------ ------------ Net income $ 25,292 $ 15,271 $ 12,469 $ 6,632 Other comprehensive income (loss): Reclassification of minimum pension liability (410) - - - Foreign currency translation adjustment 832 2,779 1,035 497 ------------ ------------ ------------ ------------ Comprehensive income $ 25,714 $ 18,050 $ 13,504 $ 7,129 ============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 2004 2003 (RESTATED) (NOTE 2) ---------- ---------- Cash flow from operating activities: Net income $ 25,292 $ 15,271 Adjustments to reconcile from net income to net cash used in operating activities: Depreciation, depletion, and amortization 15,049 14,135 Changes in assets and liabilities, net of effects of acquisitions: Decrease (increase) in current assets (28,425) (23,590) Decrease (increase) in noncurrent assets (2,085) (992) Increase (decrease) in current liabilities 9,344 10,913 Increase (decrease) in noncurrent liabilities 1,737 804 Other 914 (589) ---------- ---------- Net cash provided by operating activities 21,826 15,952 ---------- ---------- Cash flow from investing activities: Acquisition of land, mineral rights, and depreciable assets (12,077) (10,263) Acquisitions, net of cash acquired (13,335) (2,957) Other 316 234 ---------- ---------- Net cash (used in) provided by investing activities (25,096) (12,986) ---------- ---------- Cash flow from financing activities: Net increase (decrease) in outstanding debt 16,024 (4,067) Proceeds from sales of treasury stock 1,222 1,794 Purchases of treasury stock (2,879) (1,593) Dividends paid (6,731) (3,107) ---------- ---------- Net cash provided by (used in) financing activities 7,636 (6,973) ---------- ---------- Effect of foreign currency rate changes on cash 5 1,857 ---------- ---------- Net increase (decrease) in cash and cash equivalents 4,371 (2,150) ---------- ---------- Cash and cash equivalents at beginning of period 13,525 15,597 ---------- ---------- Cash and cash equivalents at end of period $ 17,896 $ 13,447 ========== ========== Supplemental disclosures of cash flow information: Cash paid (received) for: Interest, net $ 355 $ 306 ========== ========== Income taxes, net $ (2,593) $ 8,341 ========== ==========
The accompanying notes are an integral part of these condensed consolidated financial statements. 6 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 1: BASIS OF PRESENTATION The financial information included herein has been prepared by management and, other than the condensed consolidated balance sheet as of December 31, 2003, is unaudited. The condensed consolidated balance sheet as of December 31, 2003 has been derived from, but does not include all of the disclosures contained in, the audited consolidated financial statements for the year ended December 31, 2003. The information furnished herein includes all adjustments that are, in the opinion of management, necessary for a fair statement of the results of operations and cash flows for the interim periods ended September 30, 2004 and 2003, and the financial position of the Company as of September 30, 2004, and all such adjustments are of a normal recurring nature. Management recommends that the accompanying condensed consolidated financial information be read in conjunction with the consolidated financial statements and related notes included in the Company's 2004 Annual Report on Form 10-K, which accompanies the 2004 Corporate Report. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full years. RECLASSIFICATIONS Certain items in the condensed consolidated financial statements contained herein and notes thereto have been reclassified to conform with the consolidated financial statement presentation followed by the Company when it prepared the consolidated financial statements included in its annual report on Form 10-K for the year ended December 31, 2004; these reclassifications relate to commissions, intangible assets, reclamation liabilities, and income taxes payable. Commissions paid to external sales representatives have been reclassified, resulting in increases in net sales, gross profit and operating expenses. The amounts reclassified for the nine month periods ended September 30, 2004 and 2003 are $6,373 and $6,214, respectively; for the three month periods ended September 30, 2004 and 2003, the amounts are $2,526 and $2,294, respectively. An intangible asset for the environmental segment has been reclassified to reduce both prepaid expenses by $750 and other long term assets by $1,687 and increase intangible assets by $2,437. The $563 cash flow impact of amortizing this patent in the nine month period ended September 30, 2004 has been included within amortization expense in the statement of cash flows. The portion of the reclamation liability expected to be paid within one year for the minerals segment, which was $1,337 at September 30, 2004, has been reclassified to accrued liabilities at September 30, 2004. 7 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) The Company's previously filed original and amended report on Form 10-Q included a $4,812 net accrued income tax liability on the balance sheet at September 30, 2004. This amount has been reclassified to the tax receivable account within current assets in order to present the Company's tax receivable balance, resulting from the adjustments discussed in Note 2, net of this accrued tax liability balance. NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company adopted SFAS No. 143 as of January 1, 2003, and determined that no material adjustments were required to the amounts previously recorded. At September 30, 2004, the Company's recorded reclamation obligation was $5,255. During the quarter ended September 30, 2004, the obligation was increased by $113 due to payments made in relation to normal mining activities offset by accretion and recognition of additional obligations resulting from normal mining activities. NOTE 2: RESTATEMENT The Company's condensed consolidated financial statements as of and for the nine and three month periods ended September 30, 2004 have been restated. Details of the adjustments resulting in the restatement are: Adjustment 1: As detailed in Note 2 of the Company's Notes to Consolidated Financial Statements in the Company's Form 10-K for 2004 filed on March 31, 2005, the Company's balance sheet at December 31, 2003 was restated to (i) correct an accounting error that occurred in 2000 and (ii) correct an accounting error that occurred in 2001. These adjustments had the effect of increasing retained earnings by $6,552, increasing income tax receivables by $5,677, increasing long-term deferred income tax assets by $524, and increasing short-term deferred tax assets by $351. Because these adjustments related to prior periods, these adjustments also affected the balance sheet as of September 30, 2004, which has been restated herein. 8 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Adjustment 2: The Company has recorded a $1,111 income tax benefit at a U.K. subsidiary for the adjustment of deferred income tax assets and income tax payable. Because the assets should have been recognized during September 2004, the financial statements as of and for the three and nine month periods ended September 30, 2004 have been restated. Adjustment 3: The Company recorded an income tax benefit of $4,789 associated with certain deductions and credits available in computing income tax expense. Approximately $821 of this amount relates to changes in estimates resulting from the finalization, in September 2004, of the tax return for the 2003 tax year. The remaining $3,968 relates to the filing of amended federal income tax returns dating from 1999 through 2002. Because the reduction in income tax expense should have been recorded as changes in estimates when the amended tax returns were filed in September 2004, the financial statements as of and for the three and nine month periods ended September 30, 2004 have been restated. Adjustment 4: The Company has also restated the financial statements as of and for the three and nine month periods ended September 30, 2004 to record $1,205 of general, selling and administrative expenses associated with professional fees relating to the filing of amended tax returns discussed above. As a result of recording less income due to the recording of these professional fees, this adjustment also has the effect of reducing income tax expense by $422. Adjustment 5: Cash and accounts payable balances have been restated at September 30, 2004 by $5,036 for certain cash disbursements which occurred on October 1, 2004 and that were, in the Company's original and Second Amended Forms 10-Q, recorded as if the disbursements were made in September 2004. This adjustment affected the balance sheet as of September 30, 2004 and the statements of cash flows for the three and nine month periods then ended; it did not affect the statements of operations for the three and nine month periods then ended. Adjustment 6: Certain miscellaneous adjustments have been included in the restated results: . A $400 decrease to income tax receivables and increase to long-term deferred tax assets to present the amount expected to be collected within one year; . A $489 increase in goodwill and accrued liabilities to accrue for additional exit costs associated with closing a facility purchased as part of an acquisition in 2004; and . A $144 increase in depreciation expense and accumulated depreciation related to an asset that is to be disposed. 9 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) The Adjustments 1 through 6 previously discussed affect the condensed consolidated balance sheet at September 30, 2004 as illustrated below:
SEPTEMBER 30, 2004 ---------------------------------------------------------------- AS PREVIOUSLY ASSETS REPORTED ADJ 1 ADJ 2 ADJ 3 ADJ 4 - ---------------------------------------------------- ------------- --------- --------- --------- --------- Current assets: Cash $ 12,860 Accounts receivable, net 91,166 Inventories 55,299 Prepaid expenses 9,855 (878) Current deferred tax assets 5,529 351 301 Income taxes receivable - 5,677 831 3,968 422 ------------- --------- --------- --------- --------- Total current assets 174,709 6,028 1,132 3,968 (456) ------------- --------- --------- --------- --------- Investment in and advances to joint ventures 14,871 Property, plant, equipment, and mineral rights and reserves: Land and mineral rights 10,585 Depreciable assets 238,779 ------------- --------- --------- --------- --------- 249,364 - - - - Less: accumulated depreciation 162,201 ------------- --------- --------- --------- --------- 87,163 - - - - ------------- --------- --------- --------- --------- Other assets: Goodwill 16,744 Intangible assets, net 957 Deferred tax assets 4,729 524 219 Other assets 8,930 ------------- --------- --------- --------- --------- 31,360 524 219 - - ------------- --------- --------- --------- --------- $ 308,103 $ 6,552 $ 1,351 $ 3,968 $ (456) ============= ========= ========= ========= ========= SEPTEMBER 30, 2004 ---------------------------------------------------- RECLASS ASSETS ADJ 5 ADJ 6 (A) AS RESTATED - ---------------------------------------------------- --------- --------- --------- ------------- Current assets: Cash $ 5,036 $ 17,896 Accounts receivable, net 91,166 Inventories 55,299 Prepaid expenses (750) 8,227 Current deferred tax assets 6,181 Income taxes receivable (400) (4,812) 5,686 --------- --------- --------- ------------- Total current assets 5,036 (400) (5,562) 184,455 --------- --------- --------- ------------- Investment in and advances to joint ventures 14,871 Property, plant, equipment, and mineral rights and reserves: Land and mineral rights 10,585 Depreciable assets 238,779 --------- --------- --------- ------------- - - - 249,364 Less: accumulated depreciation 144 162,345 --------- --------- --------- ------------- - (144) - 87,019 --------- --------- --------- ------------- Other assets: Goodwill 489 17,233 Intangible assets, net 2,437 3,394 Deferred tax assets 400 5,872 Other assets (1,687) 7,243 --------- --------- --------- ------------- - 889 750 33,742 --------- --------- --------- ------------- $ 5,036 $ 345 $ (4,812) $ 320,087 ========= ========= ========= =============
Continued... 10 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
SEPTEMBER 30, 2004 ---------------------------------------------------------------- AS PREVIOUSLY LIABILITIES AND STOCKHOLDERS' EQUITY REPORTED ADJ 1 ADJ 2 ADJ 3 ADJ 4 - ---------------------------------------------------- ------------- --------- --------- --------- --------- Current liabilities: Notes payable $ 63 Accounts payable 19,529 Income tax payable 4,812 Accrued liabilities 34,132 327 ------------- --------- --------- --------- --------- Total current liabilities 58,536 - - - 327 ------------- --------- --------- --------- --------- Long-term debt 29,766 ------------- --------- --------- --------- --------- Minority interests in subsidiaries 123 Other liabilities 20,389 ------------- --------- --------- --------- --------- 20,512 - - - - ------------- --------- --------- --------- --------- Stockholders' equity: Common stock 320 Additional paid in capital 68,067 Retained earnings 140,036 6,552 1,111 3,968 (783) Accumulated other comprehensive income 8,554 240 ------------- --------- --------- --------- --------- 216,977 6,552 1,351 3,968 (783) Less: Treasury stock 17,688 ------------- --------- --------- --------- --------- 199,289 6,552 1,351 3,968 (783) ------------- --------- --------- --------- --------- 308,103 6,552 1,351 3,968 (456) ============= ========= ========= ========= ========= SEPTEMBER 30, 2004 ---------------------------------------------------- RECLASS LIABILITIES AND STOCKHOLDERS' EQUITY ADJ 5 ADJ 6 (A) AS RESTATED - ---------------------------------------------------- --------- --------- --------- ------------- Current liabilities: Notes payable $ 63 Accounts payable 5,036 24,565 Income tax payable (4,812) - Accrued liabilities 491 1,337 36,287 --------- --------- --------- ------------- Total current liabilities 5,036 491 (3,475) 60,915 --------- --------- --------- ------------- Long-term debt 29,766 --------- --------- --------- ------------- Minority interests in subsidiaries 123 Other liabilities (1,337) 19,052 --------- --------- --------- ------------- - - (1,337) 19,175 --------- --------- --------- ------------- Stockholders' equity: Common stock 320 Additional paid in capital 68,067 Retained earnings - (144) - 150,740 Accumulated other comprehensive income (2) 8,792 --------- --------- --------- ------------- - (146) - 227,919 Less: Treasury stock 17,688 --------- --------- --------- ------------- - (146) - 210,231 --------- --------- --------- ------------- 5,036 345 (4,812) 320,087 ========= ========= ========= =============
(A) Includes amounts being reclassified as discussed in Note 1. The table above includes these reclassifications for information purposes and to better illustrate all changes in the account balances from previously reported amounts. 11 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) The Adjustments 1 through 6 discussed previously also affect the condensed consolidated statement of operations for the nine and three month periods ended September 30, 2004 as illustrated below:
NINE MONTHS ENDED SEPTEMBER 30, 2004 ---------------------------------------------------------------- AS PREVIOUSLY REPORTED ADJ 1 ADJ 2 ADJ 3 ADJ 4 ------------- --------- --------- --------- --------- Net sales $ 340,535 Cost of sales 257,013 ------------- --------- --------- --------- --------- Gross profit 83,522 - - - - General, selling and administrative expenses 53,557 1,205 ------------- --------- --------- --------- --------- Operating profit 29,965 - - - (1,205) ------------- --------- --------- --------- --------- Other income (expense): Interest expense, net (587) Other, net (69) ------------- --------- --------- --------- --------- (656) - - - - ------------- --------- --------- --------- --------- Income before income taxes and equity in income of joint ventures 29,309 - - - (1,205) Income tax expense 8,974 (1,111) (3,968) (422) ------------- --------- --------- --------- --------- Income before equity in income of joint ventures 20,335 - 1,111 3,968 (783) Income from joint ventures 805 ------------- --------- --------- --------- --------- Net income $ 21,140 $ - $ 1,111 $ 3,968 $ (783) ============= ========= ========= ========= ========= Weighted average common shares outstanding 29,110,751 ============= Weighted average common and common equivalent shares outstanding 30,774,503 ============= Basic earnings per share $ 0.73 ============= Diluted earnings per share $ 0.69 ============= Dividends declared per share $ 0.23 ============= NINE MONTHS ENDED SEPTEMBER 30, 2004 ---------------------------------------------------- RECLASS ADJ 5 ADJ 6 (A) AS RESTATED --------- --------- --------- ------------- Net sales $ 6,373 $ 346,908 Cost of sales 142 257,155 --------- --------- --------- ------------- Gross profit - (142) 6,373 89,753 General, selling and administrative expenses 2 6,373 61,137 --------- --------- --------- ------------- Operating profit - (144) - 28,616 Other income (expense): Interest expense, net (587) Other, net (69) --------- --------- --------- ------------- - - - (656) --------- --------- --------- ------------- Income before income taxes and equity in income of joint ventures - (144) - 27,960 Income tax expense 3,473 --------- --------- --------- ------------- Income before equity in income of joint ventures - (144) - 24,487 Income from joint ventures 805 --------- --------- --------- ------------- Net income $ - $ (144) $ - $ 25,292 ========= ========= ========= ============= Weighted average common shares outstanding 29,110,751 ============= Weighted average common and common equivalent shares outstanding 30,774,503 ============= Basic earnings per share $ 0.87 ============= Diluted earnings per share $ 0.82 ============= Dividends declared per share $ 0.23 =============
(A) Includes amounts being reclassified as discussed in Note 1. The table above includes these reclassifications for information purposes and to better illustrate all changes in the account balances from previously reported amounts. Continued... 12 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THREE MONTHS ENDED SEPTEMBER 30, 2004 ------------------------------------------------------------------------------------------- AS PREVIOUSLY ADJ1 ADJ 2 ADJ 3 ADJ 4 ADJ 5 ADJ 6 REPORTED ------------- ---------- ---------- ---------- ---------- ---------- ---------- Net sales $ 121,540 Cost of sales 91,502 142 ------------- ---------- ---------- ---------- ---------- ---------- ---------- Gross profit 30,038 - - - - - (142) General, selling and administrative expenses 18,414 1,205 2 ------------- ---------- ---------- ---------- ---------- ---------- ---------- Operating profit 11,624 - - - (1,205) - (144) ------------- ---------- ---------- ---------- ---------- ---------- ---------- Other income (expense): Interest expense, net (197) Other, net (151) ------------- ---------- ---------- ---------- ---------- ---------- ---------- (348) - - - - - - ------------- ---------- ---------- ---------- ---------- ---------- ---------- Income before income taxes and equity in income of joint ventures 11,276 - - - (1,205) - (144) Income tax expense 3,295 (1,111) (3,968) (422) ------------- ---------- ---------- ---------- ---------- ---------- ---------- Income before equity in income of joint ventures 7,981 - 1,111 3,968 (783) - (144) Income from joint ventures 336 ------------- ---------- ---------- ---------- ---------- ---------- ---------- Net income $ 8,317 $ - $ 1,111 $ 3,968 $ (783) $ - $ (144) ============= ========== ========== ========== ========== ========== ========== Weighted average common shares outstanding 29,148,594 ============= Weighted average common and common equivalent shares outstanding 30,778,272 ============= Basic earnings per share $ 0.29 ============= Diluted earnings per share $ 0.27 ============= Dividends declared per share $ 0.09 ============= THREE MONTHS ENDED SEPTEMBER 30, 2004 ------------------------- RECLASS AS RESTATED (A) ---------- ------------ Net sales $ 2,526 $ 124,066 Cost of sales 91,644 ---------- ------------ Gross profit 2,526 32,422 General, selling and administrative expenses 2,526 22,147 ---------- ------------ Operating profit - 10,275 ---------- ------------ Other income (expense): Interest expense, net (197) Other, net (151) ---------- ------------ - (348) ---------- ------------ Income before income taxes and equity in income of joint ventures - 9,927 Income tax expense (2,206) ---------- ------------ Income before equity in income of joint ventures - 12,133 Income from joint ventures 336 ---------- ------------ Net income $ - $ 12,469 ========== ============ Weighted average common shares outstanding 29,148,594 ============ Weighted average common and common equivalent shares outstanding 30,778,272 ============ Basic earnings per share $ 0.43 ============ Diluted earnings per share $ 0.41 ============ Dividends declared per share $ 0.09 ============
(A) Includes amounts being reclassified as discussed in Note 1. The table above includes these reclassifications for information purposes and to better illustrate all changes in the account balances from previously reported amounts. 13 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) The effect of these reclassifications and Adjustments previously discussed in this Note 2 on the condensed consolidated statement of cash flows for the nine month periods ended September 30, 2004, when compared to the amounts originally reported, is as follows:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------- 2004 2004 (AS REPORTED) (RESTATED) (NOTE 2) -------------- -------------- Cash flow from operating activities: Net income $ 21,140 $ 25,292 (A) Adjustments to reconcile from net income to net cash used in operating activities: Depreciation, depletion, and amortization 14,342 15,049 (B) Changes in assets and liabilities, net of effects of acquisitions: Decrease (increase) in current assets (29,001) (28,425)(C) Decrease (increase) in noncurrent assets (1,466) (2,085)(D) Increase (decrease) in current liabilities 8,803 9,344 (E) Increase (decrease) in noncurrent liabilities 1,737 1,737 Other 914 914 -------------- -------------- Net cash provided by operating activities 16,469 21,826 -------------- -------------- Cash flow from investing activities: Acquisition of land, mineral rights, and depreciable assets (12,077) (12,077) Acquisitions, net of cash acquired (13,335) (13,335) Other 878 316 (F) -------------- -------------- Net cash (used in) provided by investing activities (24,534) (25,096) -------------- -------------- Cash flow from financing activities: Net increase (decrease) in outstanding debt 16,024 16,024 Proceeds from sales of treasury stock 1,222 1,222 Purchases of treasury stock (2,879) (2,879) Dividends paid (6,731) (6,731) -------------- -------------- Net cash provided by (used in) financing activities 7,636 7,636 -------------- -------------- Effect of foreign currency rate changes on cash (236) 5 (G) -------------- -------------- Net increase (decrease) in cash and cash equivalents (665) 4,371 (H) -------------- -------------- Cash and cash equivalents at beginning of period 13,525 13,525 -------------- -------------- Cash and cash equivalents at end of period $ 12,860 $ 17,896 (H) ============== ============== Supplemental disclosures of cash flow information: Cash paid (received) for: Interest, net $ 640 $ 355 (I) ============== ============== Income taxes, net $ 6,202 $ (2,593)(I) ============== ==============
(A) Reflects the net income effect of the adjustments to the nine month period ended September 30, 2004 as previously discussed. (B) Reflects a $563 increase from the reclassification of amortization expense relating to an intangible asset as discussed in Note 1 as well as the additional asset depreciation as discussed in Adjustment 6 of this Note 2. (C) Reflects a reduction of $878 due to the expensing of professional fees as discussed in Adjustment 4. Also includes a $302 increase to recognize deferred tax assets as discussed in Adjustment 2. (D) Includes a $219 effect of recognizing deferred tax assets as discussed in Adjustment 2 as well as the $400 effect of reclassifying long-term deferred tax assets as discussed in Adjustment 6. 14 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (E) Includes the $5,036 effect of properly recording cash disbursements as discussed in Adjustment 5 and the $327 effect to accrue for professional fees expensed as discussed in Adjustment 4. The remaining amount includes the effect on tax payable of recording Adjustments 2,3,4 and 6 discussed herein. (F) Reflects reclassification of amortization expense on intangible asset as discussed in Note 1. (G) Reflects the foreign currency translation effect of recording Adjustment 2. (H) Reflect the proper recording of cash disbursements as discussed in Adjustment 5. (I) Cash paid for interest reflects a $285 reclassification for interest received, which increases cash paid for income taxes and decreases cash paid for interest. In addition to this adjustment, cash paid for income taxes decreased by a total of $9,080 primarily to include cash received on income tax refunds. These adjustments also have the effect of increasing comprehensive income by $4,392 from amounts previously reported for both the nine and three month periods ended September 30, 2004. The increase is attributable to the $4,152 increase in net income illustrated in this Note 2 as well as an increase of $240 resulting from the foreign currency effect of Adjustment 2. NOTE 3: INVENTORIES Inventories at September 30, 2004 have been valued using the same methods as at December 31, 2003. The composition of inventories at September 30, 2004 and December 31, 2003 was as follows:
SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ Advance mining $ 2,423 $ 2,605 Crude stockpile inventories 16,083 14,410 In-process inventories 17,724 14,190 Other raw material, container, and supplies inventories 19,069 14,977 ------------- ------------ $ 55,299 $ 46,182 ============= ============
15 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) NOTE 4: 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. For both the quarter and nine months ended September 30, 2004, the exercise price of all the outstanding stock options was below the average market price and therefore the impact of these options was included in the computation of diluted earnings per share.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------------- ----------------------------- 2004 2003 2004 2003 ------------- ------------- ------------- ------------- Weighted average of common shares outstanding 29,110,751 28,176,170 29,148,594 28,421,103 Dilutive impact of stock options 1,663,752 1,665,209 1,629,678 1,989,112 Weighted average of common and common equivalent shares for the period 30,774,503 29,841,379 30,778,272 30,410,215 ============= ============= ============= ============= Common shares outstanding 29,203,355 28,262,630 29,203,355 28,262,630 ============= ============= ============= =============
NOTE 5: 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 both to the Company's plants and outside customers. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. Intersegment sales are insignificant, other than intersegment shipping, which is disclosed in the following table. The Company measures segment performance based on operating profit. Operating profit is defined as sales less cost of sales and general, selling and administrative expenses related to a segment's operations. The costs deducted to arrive at operating profit do not include interest or income taxes. Segment assets are those assets used in the Company's operations in that segment. Corporate assets include cash and cash equivalents, corporate leasehold improvements, the nanocomposite plant investment and other miscellaneous equipment. 16 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED) The following summaries set forth certain financial information by business segment for the nine and three months ended September 30, 2004 and 2003 and as of September 30, 2004 and December 31, 2003.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 (RESTATED) (RESTATED) (NOTE 2) (NOTE 2) -------------- -------------- -------------- -------------- Business Segment: Revenues: Minerals $ 198,429 $ 159,751 $ 67,430 $ 55,467 Environmental 129,820 101,062 49,983 40,305 Transportation 30,369 28,554 10,979 10,367 Intersegment shipping (11,710) (10,967) (4,326) (4,379) -------------- -------------- -------------- -------------- Total $ 346,908 $ 278,400 $ 124,066 $ 101,760 ============== ============== ============== ============== Operating profit (loss): Minerals $ 23,771 $ 16,854 $ 8,098 $ 6,055 Environmental 16,051 14,875 6,820 7,171 Transportation 1,360 1,252 523 477 Corporate (12,566) (10,442) (5,166) (3,761) -------------- -------------- -------------- -------------- Total $ 28,616 $ 22,539 $ 10,275 $ 9,942 ============== ============== ============== ============== SEPT. 30, 2004 DEC. 31, 2003 -------------- -------------- Assets: Minerals $ 165,861 $ 144,973 Environmental 126,642 83,459 Transportation 1,947 1,891 Corporate 25,637 35,006 -------------- -------------- Total $ 320,087 $ 265,329 ============== ==============
At September 30, 2004 and December 31, 2003, goodwill for the minerals segment was $4,973 and $5,394; for the environmental segment, it was $12,260 and $239, respectively. The purchase price allocations of certain acquisitions have not been finalized as management is in the process of determining the fair values of the assets acquired and liabilities assumed. NOTE 6: STOCK OPTION PLANS Prior to 2003, the Company accounted for its fixed plan stock options under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost was reflected in net income prior to 2003, as all options granted under those plans had an exercise price equal to the market 17 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) value of the underlying common stock on the date of grant. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and elected to apply those provisions prospectively, in accordance with SFAS No. 148, Accounting for Stock-Based Compensation-amendment to SFAS 123, to all employee awards granted, modified, or settled after January 1, 2003. Awards under the Company's plans vest over three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2003 and 2004 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement No. 123. Results for prior years have not been restated. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ------------------------------ 2004 2003 2004 2003 (RESTATED) (RESTATED) (NOTE 2) (NOTE 2) -------------- -------------- -------------- -------------- Net income, as reported $ 25,292 $ 15,271 $ 12,469 $ 6,632 Add: Stock-based employee compensation expense included in reported in net income, net of related tax effects 936 215 299 66 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (1,161) (620) (374) (207) -------------- -------------- -------------- -------------- Pro forma net income $ 25,067 $ 14,866 $ 12,394 $ 6,491 ============== ============== ============== ============== Earnings per share: Basic - as reported $ 0.87 $ 0.54 $ 0.43 $ 0.23 Basic - pro forma $ 0.86 $ 0.53 $ 0.43 $ 0.23 Diluted - as reported $ 0.82 $ 0.51 $ 0.41 $ 0.22 Diluted - pro forma $ 0.81 $ 0.50 $ 0.40 $ 0.21
18 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (CONTINUED) NOTE 7: COMPONENTS OF PENSION AND OTHER RETIREMENT BENEFIT COST
NINE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 2004 2003 2004 2003 -------------- -------------- -------------- -------------- Service cost $ 1,086 $ 996 $ 362 $ 332 Interest cost 1,371 1,314 457 438 Expected return on plan assets (1,452) (1,182) (484) (394) Amortization of transition asset (102) (102) (34) (34) Amortization of prior service cost 21 21 7 7 Amortization of net loss - 51 - 17 -------------- -------------- -------------- -------------- Net periodic benefit cost $ 924 $ 1,098 $ 308 $ 366 ============== ============== ============== ==============
EMPLOYER CONTRIBUTIONS The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expected to contribute $1,000 to its pension plan in 2004. As of September 30, 2004, that full contribution has been made. NOTE 8: ACQUISITIONS The Company acquired all of the outstanding stock in two acquisitions during the nine month period ended September 30, 2004. Net cash paid and notes payable assumed totaled $13,335. Goodwill associated with these acquisitions was $11,796. These acquisitions, individually and in the aggregate, did not materially affect the Company's operating results or financial position in the periods presented. The purchase price allocations of certain acquisitions have not been finalized as management is in the process of determining the fair values of the acquired assets and liabilities assumed. 19 ITEM 2: AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS From time to time, certain statements we make, including statements in this Management's Discussion and Analysis of Financial Condition and Results of Operation section, constitute "forward-looking statements" made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to our Company or our operations that are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions, and statements relating to anticipated growth and levels of capital expenditures. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Our actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors, including without limitation the following: actual performance in our various markets; conditions in the metalcasting and construction industries; operating costs; competition; currency exchange rates and devaluations; delays in development, production and marketing of new products; and other factors set forth from time to time in our reports filed with the Securities and Exchange Commission. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. We evaluate the accounting policies and estimates used to prepare the financial statements on an ongoing basis. We consider the accounting policies used in preparing our financial statements to be critical accounting policies when they are both important to the portrayal of our financial condition and results of operation, and require us to make estimates, complex judgments and assumptions, including with respect to events which are inherently uncertain. As a result, actual results could differ from these estimates. For more information on our critical accounting policies, one should also read our Annual Report on Form 10-K for the year ended December 31, 2004. ANALYSIS OF RESULTS OF OPERATIONS Following is a discussion and analysis that describes certain factors that have affected, and may continue to affect, our financial position and operating results. This discussion should be read with the accompanying condensed consolidated financial statements. In addition, as discussed in Note 1 and Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1, the Company has reclassified and restated certain financial data as of and for the three and nine month periods ended September 30, 2004. The following discussion and analysis of results of operations and financial condition are based upon such restated and reclassified financial data. 20 THREE MONTHS ENDED SEPTEMBER 30, 2004 VS. SEPTEMBER 30, 2003: RESULTS OF OPERATIONS (IN MILLIONS): NET SALES: 2004 2003 % Change --------- -------- -------- $ 124.1 $ 101.8 22% Net sales from businesses acquired since the fourth quarter of 2003 accounted for approximately 32% of the growth over the prior year period, while favorable foreign currency changes accounted for approximately 11% of the increase in net sales. On an operating segment basis, minerals accounted for approximately 54% of the increase in net sales while environmental contributed approximately 43% of the growth. Our transportation segment accounted for approximately 3% of the sales growth over the third quarter of 2003. GROSS PROFIT: 2004 2003 % Change --------- -------- -------- $ 32.4 $ 27.7 17% Margin 26.1% 27.2% N/A Gross profit improved in the third quarter of 2003 in conjunction with the increase in net sales. Gross margin declined by 110 basis points due to relatively lower gross profit earned from the environmental segment. GENERAL, SELLING & ADMINISTRATION EXPENSES: 2004 2003 % Change --------- -------- -------- $ 22.1 $ 17.7 25% Higher compensation and benefit costs accounted for the majority of the increase over the 2003 third quarter. We had higher employment levels compared with the prior year due to acquired businesses and staffing increases. We recorded approximately $1.2 million of tax consulting fees in the 2004 period in connection with the filing of amended federal income tax returns which are claiming refunds for increased deductions and credits for the 1999 through 2002 tax years. Further background on this matter is described in Note 2 to Condensed Consolidated Financial Statements included in Item 1. Stock-based compensation costs accounted for approximately $0.2 million of the increase over the prior year period. Research and development expenses were approximately $1.4 million in the third quarter of 2004 compared with $1.2 million in last year's period. OPERATING PROFIT: 2004 2003 % Change --------- -------- -------- $ 10.3 $ 9.9 3% Margin 8.3% 9.8% N/A Operating profit growth was depressed by the charge for tax consulting fees described above. If those fees had not been recorded, operating profit would have been $11.5 million for the reporting period, or an increase of 15% over the 2003 period. 21 Favorable foreign currency exchange rates accounted for 16% of the increase in operating profit over the 2003 third quarter, after considering the effect of the tax consulting fees. Acquisitions had an immaterial impact on operating profit in the current-year period. The remainder of the increase was generated by organic growth from the minerals segment. Eliminating the effect of the tax consulting fees, operating margin declined by 50 basis points as a result of the decline in environmental segment profits compared with the 2003 period. INTEREST EXPENSE, NET: 2004 2003 % Change ------- ------- -------- $ 0.2 $ 0.1 100% Interest expense in the third quarter increased due to higher average long-term debt compared with the prior year period. The increase in long-term debt was attributed to acquisitions completed in the first quarter of 2004 and an increase in working capital funding in the third quarter of this year. INCOME TAXES: 2004 2003 % Change ------- ------- -------- $ (2.2) $ 3.4 N/A Effective tax rate N/A 34.0% N/A As described in Adjustments 2, 3, and 4 of Note 2 to Condensed Consolidated Financial Statements included in Item 1, we reported an income tax benefit in the 2004 period due to the filing of amended federal income tax returns and recording adjustments to deferred income tax assets and income taxes payable at a U.K. subsidiary. After factoring out the $5.5 million benefit recorded to income tax expense associated with these events, our effective income tax rate would have been 29%. Businesses with lower statutory income tax rates represented a greater proportion of pre-tax earnings in the current year period compared with the third quarter of 2003. NET INCOME: 2004 2003 % Change ------- ------- -------- $ 12.5 $ 6.6 88% Margin 10.1% 6.5% N/A The tax benefit adjustments described above, less the net effect of the tax consulting fees associated with the filing of amended income tax returns, accounted for $4.3 million of the increase over the 2003 period. Increased operating profit accounted for the remaining portion of the improvement over the 2003 reporting period. Net margin in the 2004 period increased primarily due to the tax benefit adjustments. Net margin would have been 6.6% for the 2004 period after factoring out the tax benefit adjustments. DILUTED EARNINGS PER SHARE: 2004 2003 % Change ------- ------- -------- $ 0.41 $ 0.22 86% The net effect of the tax benefit adjustments and tax consulting fees accounted for $0.14 per diluted share of the increase over the 2003 period. Organic sales and operating profit growth contributed $0.03 per share of the increase over the third quarter of 2003. A lower effective income tax rate, after factoring out the tax benefit adjustments, accounted for $0.02 per share of the increase over the third quarter of 2003. Weighted average common and common equivalent shares outstanding 22 increased by approximately 1% over the 2003 quarter. Stock option exercises by employees resulted in higher weighted average shares outstanding during the current reporting period. SEGMENT ANALYSIS: Following is a review of operating results for each of our four reporting segments:
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- MINERALS 2004 2003 2004 VS. 2003 - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Product sales $ 60,917 90.3% $ 51,077 92.1% Shipping revenue 6,513 9.7% 4,390 7.9% ---------- ---------- ---------- ---------- Net sales 67,430 100.0% 55,467 100.0% 11,963 21.6% ---------- ---------- ---------- ---------- Cost of sales - product 46,694 69.2% 40,051 72.2% Cost of sales - shipping 6,513 9.7% 4,390 7.9% ---------- ---------- ---------- ---------- Cost of sales 53,207 78.9% 44,441 80.1% ---------- ---------- ---------- ---------- Gross profit 14,223 21.1% 11,026 19.9% 3,197 29.0% General, selling andadministrative expenses 6,125 9.1% 4,971 9.0% 1,154 23.2% ---------- ---------- ---------- ---------- ---------- Operating profit 8,098 12.0% 6,055 10.9% 2,043 33.7%
Approximately 80% of the segment's sales growth was organic with favorable foreign currency exchange rates accounting for the remainder. Organic sales growth was primarily attributed to the metalcasting and specialty minerals businesses. Domestic metalcasting sales were positively impacted by higher demand from rail car producers as well as automotive component manufacturers. The metalcasting markets in the Asia/Pacific region also continued to benefit from strong demand from automotive and transportation equipment component manufacturers. Gross profit rose in conjunction with the increase in sales. Gross margin improved by 120 basis points over the prior-year period due to increased production volume and increased pricing in the metalcasting and specialty minerals business units. General, selling and administrative costs increased primarily due to higher bad debt expenses associated with domestic metalcasting customers. Operating profit improved over the third quarter of 2003 due to the increase in sales and gross profit. Operating margin increased by 110 basis points due to the expansion in gross margin and a lower rate of increase in general, selling and administrative expenses. 23
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- 2004 2003 2004 VS. 2003 (RESTATED) (RESTATED) ENVIRONMENTAL (NOTE 2) (NOTE 2) - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Product sales $ 46,422 92.9% $ 37,102 92.1% Shipping revenue 3,561 7.1% 3,203 7.9% ---------- ---------- ---------- ---------- Net sales 49,983 100.0% 40,305 100.0% 9,678 24.0% ---------- ---------- ---------- ---------- Cost of sales - product 29,437 58.9% 21,593 53.6% Cost of sales - shipping 3,561 7.1% 3,203 7.9% ---------- ---------- ---------- ---------- Cost of sales 32,998 66.0% 24,796 61.5% ---------- ---------- ---------- ---------- Gross profit 16,985 34.0% 15,509 38.5% 1,476 9.5% General, selling and administrative expenses 10,165 20.3% 8,338 20.7% 1,827 21.9% ---------- ---------- ---------- ---------- ---------- Operating profit 6,820 13.6% 7,171 17.8% (351) -4.9%
Approximately 65% of the increase in net sales was attributed to acquisitions. Favorable currency exchange rates accounted for another 9% of the increase. Organic sales growth was attributed to the European building materials business. Gross profit grew in conjunction with the increase in net sales; however, gross margin declined by 450 basis points from the third quarter of 2003. Acquired businesses earned relatively lower gross margins than existing businesses. Gross margins earned from existing businesses were comparable to third quarter of 2003. General, selling and administrative expenses increased primarily due to higher personnel levels and benefit costs. The personnel increase was primarily associated with acquisitions completed since the third quarter of 2003. Higher foreign currency exchange rates also contributed to the increase over 2003. Operating profit declined as general, selling and administrative expenses increased more than gross profits. Operating margin declined by 420 basis points. This decline was caused by the decline in gross margin described above.
THREE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- TRANSPORTATION 2004 2003 2004 VS. 2003 - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Net sales $ 10,979 100.0% $ 10,367 100.0% $ 612 5.9% Cost of sales 9,765 88.9% 9,243 89.2% ---------- ---------- ---------- ---------- Gross profit 1,214 11.1% 1,124 10.8% 90 8.0% General, selling and administrative expenses 691 6.3% 647 6.2% 44 6.8% ---------- ---------- ---------- ---------- ---------- Operating profit 523 4.8% 477 4.6% 46 9.6%
Net sales improved due to higher traffic levels and increased pricing. Gross margin improved by 20 basis points over the third quarter of 2003 due to the increase in sales. General, selling and administrative expenses increased due to higher personnel costs. 24
THREE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------- 2004 2003 2004 VS. 2003 (RESTATED) (RESTATED) CORPORATE (NOTE 2) (NOTE 2) - ------------------------------------------------------ ---------- ---------- ----------------------- (Dollars in Thousands) Intersegment shipping sales $ (4,326) $ (4,379) Intersegment shipping costs (4,326) (4,379) ---------- ---------- Gross profit - - Corporate general, selling and administrative expenses 4,250 2,802 1,448 51.7% Nanocomposite business development expenses 916 959 (43) -4.5% ---------- ---------- ---------- Operating loss (5,166) (3,761) (1,405) 37.4%
Intersegment shipping revenues 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. As previously described in this report, we recorded tax consulting fees of $1.2 million in the 2004 period in connection with the filing of amended federal income tax returns which are claiming refunds for increased deductions and credits for the 1999 through 2002 tax years. The remaining increase was primarily due to higher stock-based compensation costs recorded in the current year. Corporate personnel levels and base compensation costs were comparable to the prior year period. Net nanocomposite operating expenses declined from the third quarter of 2003 due to lower spending on activities that are now funded by our alliance partners. This business has alliance agreements with Mitsubishi Gas Chemical Company and Poly One Corporation that focus on developing certain markets for nanocomposites. NINE MONTHS ENDED SEPTEMBER 30, 2004 VS. SEPTEMBER 30, 2003: RESULTS OF OPERATIONS (IN MILLIONS): NET SALES: 2004 2003 % Change ------- ------- -------- $ 346.9 $ 278.4 25% Net sales from businesses acquired since the fourth quarter of 2003 accounted for approximately 31% of the growth over the prior year period, while favorable foreign currency changes accounted for approximately 13% of the increase in net sales. On an operating segment basis, minerals accounted for approximately 56% of the increase in net sales while environmental contributed approximately 42% of the growth. The remaining increase in net sales was contributed by the transportation segment. 25 GROSS PROFIT: 2004 2003 % Change ------- ------- -------- $ 89.8 $ 73.4 22% Margin 25.9% 26.4% N/A Gross profit improved over the 2003 nine-month period in conjunction with the increase in net sales. The decline in gross margin arose from lower profitability in the environmental segment. GENERAL, SELLING & ADMINISTRATION EXPENSES: 2004 2003 % Change ------- ------- -------- $ 61.1 $ 50.9 20% Higher compensation and benefit costs accounted for the majority of the increase over the 2003 nine-month period. We had higher personnel levels in the 2004 period due to acquisitions and staffing increases. We recorded approximately $1.2 million of tax consulting fees in the 2004 period in connection with the filing of amended federal income tax returns which are claiming refunds for increased deductions and credits for the 1999 through 2002 tax years. Further background on this matter is described in Note 2 to Condensed Consolidated Financial Statements included in Item 1. Stock-based compensation costs accounted for approximately $0.7 million of the increase over the prior-year period. Research and development expenses were approximately $4.1 million in the current-year period compared with $3.8 million in the 2003 nine-month period. OPERATING PROFIT: 2004 2003 % Change ------- ------- -------- $ 28.6 $ 22.5 27% Margin 8.3% 8.1% N/A Operating profit improved with the increase in gross profit and net sales; however, growth was depressed by the charge for tax consulting fees described above. If those fees had not been recorded, operating profit would have been $29.8 million for the 2004 reporting period, or an increase of 32% over the 2003 period. Acquisitions and favorable foreign currency exchange rates accounted for 18% and 14%, respectively, of the increase in operating profit over the 2003 nine-month period. Operating margin for both reporting periods; however, it would have improved by 50 basis points after factoring out the effect of the tax consulting fees described above. The improvement in operating margin, after factoring out the effect of the tax consulting fees, reflected lower growth in operating expenses compared to gross profit gains over the prior-year period. INTEREST EXPENSE, NET: 2004 2003 % Change ------- ------- -------- $ 0.6 $ 0.3 100% Interest expense in the current year period increased due to higher average long-term debt compared with the prior year period. The increase in long-term debt was attributed to acquisitions completed in the first quarter of 2004 and an increase in working capital funding over the course of the year. 26 INCOME TAXES: 2004 2003 % Change ------- ------- -------- $ 3.5 $ 7.7 (55)% Effective tax rate 12.4% 34.0% N/A As described in Adjustments 2, 3 and 4 of Note 2 to Condensed Consolidated Financial Statements included in Item 1, we reported an income tax benefit in the 2004 period due to the filing of amended federal income tax returns and recording adjustments to deferred income tax assets and income taxes payable at a U.K. subsidiary. After factoring out the $5.5 million benefit recorded to income tax expense associated with these events, our effective income tax rate would have been 32%. Businesses with lower statutory income tax rates represented a greater proportion of pre-tax earnings in the current year period compared with the 2003 nine-month period, resulting in the decrease in the effective tax rate. NET INCOME: 2004 2003 % Change ------- ------- -------- $ 25.3 $ 15.3 66% Margin 7.2% 5.5% N/A The tax benefit adjustments described above, less the net effect of the tax consulting fees associated with the filing of amended income tax returns, accounted for $4.3 million of the increase over the 2003 period. Net income improved, after factoring out the effect of the tax benefit adjustments, in conjunction with the increase in operating profit and the lower adjusted effective income tax rate in the 2004 period. DILUTED EARNINGS PER SHARE: 2004 2003 % Change ------- ------- -------- $ 0.82 $ 0.51 61% The net effect of the tax benefit adjustments and tax consulting fees accounted for $0.14 per diluted share of the increase over the 2003 period. Earnings from acquired businesses, favorable foreign currency exchange rates and a lower effective income tax rate, after factoring out the tax benefit adjustments, accounted of $0.03, $0.02 and $0.03 per share, respectively, of the increase over the 2003 nine-month period. Weighted average common and common equivalent shares outstanding increased by 3.1% over the 2003 nine-month period, which negatively impacted earnings per share by $0.03 per share in the 2004 period. Stock option exercises by employees resulted in higher weighted average shares outstanding in the current reporting period. Organic sales and operating profit growth contributed the remaining increase over the prior-year period. 27 SEGMENT ANALYSIS: Following is a review of operating results for each of our four reporting segments:
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- MINERALS 2004 2003 2004 VS. 2003 - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Product sales $ 180,886 91.2% $ 145,545 91.1% Shipping revenue 17,543 8.8% 14,206 8.9% ---------- ---------- ---------- ---------- Net sales 198,429 100.0% 159,751 100.0% 38,678 24.2% ---------- ---------- ---------- ---------- Cost of sales - product 140,046 70.6% 114,007 71.4% Cost of sales - shipping 17,543 8.8% 14,206 8.9% ---------- ---------- ---------- ---------- Cost of sales 157,589 79.4% 128,213 80.3% ---------- ---------- ---------- ---------- Gross profit 40,840 20.6% 31,538 19.7% 9,302 29.5% General, selling andadministrative expenses 17,069 8.6% 14,684 9.2% 2,385 16.2% ---------- ---------- ---------- ---------- ---------- Operating profit 23,771 12.0% 16,854 10.6% 6,917 41.0%
Acquired businesses and favorable foreign currency exchange rates accounted for approximately 9% and 13%, respectively, of the increase in net sales over the 2003 nine-month period. Organic sales growth was primarily attributed to the metalcasting and specialty minerals businesses. Domestic metalcasting sales were positively impacted by higher demand from rail car producers as well as automotive component manufacturers. The metalcasting markets in the Asia/Pacific region also continued to benefit from strong demand from automotive and transportation equipment component manufacturers. Specialty minerals experienced higher demand from detergent producers while the health and beauty business continued to grow its customer base. Gross profit rose in conjunction with the increase in sales. Gross margin improved by 90 basis points over the prior year period due to increased production volume and increased pricing in the metalcasting and specialty minerals business units. General, selling and administrative expenses increased primarily due to higher compensation and benefit costs and an increase in bad debt expense associated with domestic metalcasting customers. Higher foreign currency exchange rates also contributed to the increase over the prior year period. Operating profit improved over the 2003 nine-month period due to the increase in sales and gross profit. Operating margin increased by 140 basis points due to the expansion in gross margin and a lower rate of increase in general, selling and administrative expenses. 28
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- 2004 2003 2004 VS. 2003 (RESTATED) (RESTATED) ENVIRONMENTAL (NOTE 2) (NOTE 2) - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Product sales $ 121,215 93.4% $ 93,680 92.7% Shipping revenue 8,605 6.6% 7,382 7.3% ---------- ---------- ---------- ---------- Net sales 129,820 100.0% 101,062 100.0% 28,758 28.5% ---------- ---------- ---------- ---------- Cost of sales - product 75,665 58.3% 54,946 54.4% Cost of sales - shipping 8,605 6.6% 7,382 7.3% ---------- ---------- ---------- ---------- Cost of sales 84,270 64.9% 62,328 61.7% ---------- ---------- ---------- ---------- Gross profit 45,550 35.1% 38,734 38.3% 6,816 17.6% General, selling and administrative expenses 29,499 22.7% 23,859 23.6% 5,640 23.6% ---------- ---------- ---------- ---------- ---------- Operating profit 16,051 12.4% 14,875 14.7% 1,176 7.9%
Approximately 60% of the increase in net sales was attributed to businesses acquired since the fourth quarter of 2003. Favorable currency exchange rates accounted for another 14% of the increase. Organic sales growth was primarily attributed to the European building materials and lining technologies businesses. Gross profit grew in conjunction with the increase in net sales; however, gross margin declined by 320 basis points in comparison with the 2003 nine-month period. Acquired businesses earned relatively lower gross margins than existing businesses. Gross margins earned from existing businesses were comparable to the 2003 nine-month period. General, selling and administrative expenses increased primarily due to higher personnel levels and associated benefit costs. The personnel increase was primarily attributed to acquired businesses since the fourth quarter of 2003. Higher foreign currency exchange rates also contributed to the increase over 2003. Operating profit grew due to the increase in net sales and gross profit over the prior year period. Operating margin declined by 230 basis points as a result of the decrease in gross margin described above.
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------------------------- TRANSPORTATION 2004 2003 2004 VS. 2003 - ------------------------------------------- ----------------------- ----------------------- ----------------------- (Dollars in Thousands) Net sales $ 30,369 100.0% $ 28,554 100.0% $ 1,815 6.4% Cost of sales 27,006 88.9% 25,427 89.0% ---------- ---------- ---------- ---------- Gross profit 3,363 11.1% 3,127 11.0% 236 7.5% General, selling and administrative expenses 2,003 6.6% 1,875 6.6% 128 6.8% ---------- ---------- ---------- ---------- ---------- Operating profit 1,360 4.5% 1,252 4.4% 108 8.6%
Net sales improved due to higher traffic levels and new customers. Intersegment revenues also contributed to the increase. Gross margin improved over the 2003 nine-month period by 10 basis points primarily due to higher pricing and better asset utilization. General, selling and administrative expenses increased due to higher personnel costs. 29
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------- 2004 2003 2004 VS. 2003 (RESTATED) (RESTATED) CORPORATE (NOTE 2) (NOTE 2) - ------------------------------------------------------ ---------- ---------- ----------------------- (Dollars in Thousands) Intersegment shipping sales $ (11,710) $ (10,967) Intersegment shipping costs (11,710) (10,967) ---------- ---------- Gross profit - - Corporate general, selling and administrative expenses 9,844 7,535 2,309 30.6% Nanocomposite business development expenses 2,722 2,907 (185) -6.4% ---------- ---------- ---------- Operating loss (12,566) (10,442) (2,124) 20.3%
Intersegment shipping revenues 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. As previously described in this report, we recorded tax consulting fees of $1.2 million in the 2004 period in connection with the filing of amended federal income tax returns which are claiming refunds for increased deductions and credits for the 1999 through 2002 tax years. The remaining increase was primarily due to higher stock-based compensation costs recorded in the current year. Corporate personnel levels and base compensation costs were comparable to the prior year period. Nanocomposite operating expenses declined from the 2003 nine-month period due to lower spending on activities that are now funded by our alliance partners. LIQUIDITY AND CAPITAL RESOURCES (IN MILLIONS):
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2004 2003 (RESTATED) CASH FLOWS (NOTE 2) - ------------------------------------------------------ ---------- ---------- Net cash provided by (used in) operating activities $ 21.8 $ 16.0 Net cash provided by (used in) investing activities $ (25.1) $ (13.0) Net cash provided by (used in) financing activities $ 7.6 $ (7.0)
Cash flows provided by operating activities improved over the 2003 period as a result of higher net income, which increased by $10.0 million. Historically, cash flows from operations have increased over the course of the fiscal year and we anticipate this pattern to continue for the remainder of 2004. Cash flows used in investing activities increased primarily due to acquisitions completed in the first quarter of 2004. We acquired the shares of Lafayette Well Testing, Inc. on January 7, 2004, and Linteco Geotechnische Systeme GmbH on March 5, 2004. Capital expenditures to-date in 2004 totaled $12.1 million compared with $10.3 million in the prior-year period. We anticipate capital expenditures to increase over the remainder of 2004 due to investments in capacity expansion and productivity projects. We announced the acquisition of a production facility in October 2004 with a cost of $4.1 million. 30 The facility will be used for expanding manufacturing operations for our environmental segment. Our estimate of 2004 capital expenditures is in the range of $20 million to $22 million. Cash flows provided by financing activities increased due to debt funding for acquisitions completed in 2004. We used our revolving credit facility to finance the acquisitions. Additionally, we assumed approximately $4.1 million of funded debt as part of the consideration for the Linteco acquisition. Dividends paid to-date in 2004 increased to $6.7 million from $3.1 million in the prior-year period. We purchased 183,400 shares of our common stock on the open market during the first nine months of 2004 for a total value of $2.9 million, or an average price per share of $15.70. All of the shares repurchased in 2004 were based on a board authorization approved on May 16, 2002. The 2002 authorization expired during the second quarter of 2004. On May 13, 2004, the board of directors authorized funds to repurchase up to $10 million of our common stock on the open market over a two-year period if we believe such a use of our cash will enhance shareholder value. The entire $10 million remains available to repurchase common stock as of September 30, 2004. We purchased approximately $1.6 million of our common stock in the open market during the first nine months of 2003.
SEPTEMBER 30, DECEMBER 31, 2004 2003 (UNAUDITED) (RESTATED) FINANCIAL POSITION (NOTE 2) - ------------------------------------------------------ ------------- ------------ Working capital $ 123.5 $ 95.9 Intangible assets $ 20.6 $ 10.0 Total assets $ 320.1 $ 265.3 Long-term debt $ 29.8 $ 9.0 Other long-term obligations $ 19.2 $ 17.2 Stockholder's equity $ 210.2 $ 191.5
Working capital at September 30, 2004 increased from December 31, 2003, primarily due to acquisitions completed in 2004 and strong sales reported in the period. The current ratio was 3.0-to-1 and 3.0-to-1 at September 30, 2004 and December 31, 2003, respectively. Intangible assets primarily represent goodwill associated with acquisitions. The amount increased from December 31, 2003 as a result of purchase price allocations for acquisitions closed in 2004. The purchase price allocations may be subject to change since certain assets and liabilities assumed with the acquisitions require further analysis to determine their fair values. Consequently, intangible asset values may change as well. Long-term debt increased to 12.4% of total capitalization at September 30, 2004 compared with 4.5% at December 31, 2003. The increase in debt levels was principally attributed to funding of acquisitions completed in 2004 which also included an assumption of debt. We have a $100 million revolving credit facility with a consortium of U.S. banks which matures on October 31, 2006. At September 30, 2004, we had approximately $76 million of borrowing capacity remaining from the credit facility. The credit facility stipulates that we must comply with a number of financial covenants. We are in compliance with those covenants at September 30, 2004. Other long-term obligations primarily represent liabilities associated with our qualified and supplemental retirement plans and deferred income taxes. 31 We believe future cash flows from operations combined with borrowing capacity from our revolving credit facility will be adequate to fund capital expenditures and other investments approved by the board of directors. Since the mid 1980's, the Company and/or its subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content within the Company's bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of the Company's foundry customers. To date, the Company has not incurred significant costs in defending these matters. The Company believes it has adequate insurance coverage and does not believe the litigation will have a material adverse impact on the financial condition, liquidity or results of the operation of the Company. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK There have been no material changes in the Company's market risk during the three and nine months ended September 30, 2004. See disclosures as of December 31, 2003 in the Company's Annual Report on Form 10-K, Item 7A. ITEM 4: CONTROLS AND PROCEDURES An evaluation has been performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2004. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, solely as a result of the material weakness in our internal control over financial reporting discussed below, our disclosure controls and procedures were not effective as of September 30, 2004 to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act are recorded, processed, summarized and reported as and when required. Notwithstanding the foregoing, management believes that the financial statements included within this report fairly present in all material respects the financial position, results of operations, and cash flows of the Company, in conformity with generally accepted accounting principles in the United States, for the periods presented. The Securities and Exchange Commission, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring public companies to include in their annual reports on Form 10-K an assessment by management of the effectiveness of the Company's internal controls over financial reporting. In addition, the Company's independent registered public accounting firm must attest to and report on management's assessment, as well as make its own assessment of the effectiveness of the Company's internal control over financial reporting. As described in the annual report on Form 10-K filed by the Company for the year ended December 31, 2004, we are relying upon an exemptive order issued by the SEC on November 30, 2004 (SEC Release No. 34-50754), permitting the Company to delay by 45 days the filing of management's annual report on internal control over financial reporting and the related attestation report. In conducting the evaluation and assessment of the Company's internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act, management identified a material weakness in internal control over financial reporting relative to our accounting for income taxes. In 32 particular, our design of internal controls did not address the accounting considerations arising from the filing of tax returns or the timing of recording of changes in accounting estimates relating to income taxes of foreign subsidiaries. This control weakness resulted in errors in our accounting for income taxes, which were identified during the course of our 2004 audit, and resulted in the restatement of our financial results for the quarter ended September 30, 2004 described in this quarterly report on Form 10-Q/A. Due to the foregoing material weakness, management will be required to conclude that the Company's internal control over financial reporting was ineffective as of December 31, 2004. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934) during the fiscal quarter ended September 30, 2004 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. However, we are working to design and implement appropriate procedures in order to remediate the deficiencies in our internal control over financial reporting concerning accounting for income taxes. After the discovery, in the first quarter of 2005, of the errors resulting in the restatement of our financial statements as of and for the three and nine month periods ended September 30, 2004, we are implementing changes to our design of internal control with respect to accounting for income taxes. Specifically, we will formalize procedures relating to determination of appropriate accounting treatment for certain deduction and credit positions taken in filing income tax returns, both amended and original. Our Tax Manager will be responsible to report to the Controller and Chief Financial Officer each quarter changes in such tax positions that may have a material effect on the financial statements. The Controller and Chief Financial Officer will review the positions and document conclusions as to the accounting treatment. Additionally, we will enhance controls over financial reporting of our foreign subsidiaries to assure the consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles and changes in accounting estimates are recorded in the appropriate reporting period. 33 PART II - OTHER INFORMATION ITEM 2(c) COMPANY REPURCHASES OF COMPANY STOCK
TOTAL NUMBER OF MAXIMUM VALUE OF SHARES REPURCHASED AVERAGE SHARES THAT MAY YET BE AS PART OF THE STOCK PRICE PAID REPURCHASED UNDER THE REPURCHASE PROGRAM PER SHARE PROGRAM -------------------- ---------- ---------------------- January 1, 2004 - January 31, 2004 Shares repurchased - $ - $ 3,704,133 February 1, 2004 - February 29, 2004 Shares repurchased - $ - $ 3,704,133 March 1, 2004 - March 31, 2004 Shares repurchased 12,400 $ 15.83 $ 3,507,839 April 1, 2004 - April 30, 2004 Shares repurchased - $ - $ 3,507,839 May 1, 2004 - May 31, 2004 Shares repurchased 171,000 $ 15.69 $ 825,448 Expiration of unused authorization - $ - $ - New repurchase authorization - $ - $ 10,000,000 June 1, 2004 - June 30, 2004 Shares repurchased - $ - $ 10,000,000 July 1, 2004 - September 30, 2004 - $ - $ 10,000,000 -------------------- ---------- Total 183,400 $ 15.70 $ 10,000,000 ==================== ==========
On May 13, 2004, the Board of Directors authorized a program to repurchase up to $10 million of the Company's outstanding stock which will expire September 30, 2006. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) See Index to Exhibits immediately following the signature page. (b) A current report on Form 8-K was filed on July 19, 2004, furnishing a press release disclosing the Company's operating results for the second quarter ended June 30, 2004. 34 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: April 13, 2005 /s/ Lawrence E. Washow ------------------------------------- Lawrence E. Washow President and Chief Executive Officer Date: April 13, 2005 /s/ Gary L. Castagna ------------------------------------- Gary L. Castagna Senior Vice President and Chief Financial Officer and Principal Accounting Officer 35 INDEX TO EXHIBITS EXHIBIT NUMBER - ------- 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) 32 Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350 36 EX-31.1 2 ai2409ex311.txt EXHIBIT 31.1 AMCOL INTERNATIONAL CORPORATION CERTIFICATION PURSUANT TO RULE 13a - 14(a) / 15d-14(a) I, Lawrence E. Washow, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of AMCOL International Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 13, 2005 /s/ Lawrence E. Washow ------------------------------------- Lawrence E. Washow President and Chief Executive Officer EX-31.2 3 ai2409ex312.txt EXHIBIT 31.2 AMCOL INTERNATIONAL CORPORATION CERTIFICATION PURSUANT TO RULE 13a - 14(a) / 15d-14(a) I, Gary L. Castagna, certify that: 1. I have reviewed this quarterly report on Form 10-Q/A of AMCOL International Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 13, 2005 /s/ Gary L. Castagna ---------------------------- Gary L. Castagna Senior Vice President, Chief Financial Officer and Principal Accounting Officer EX-32 4 ai2409ex32.txt EXHIBIT 32 CERTIFICATION OF PERIODIC FINANCIAL REPORT PURSUANT TO 18 U.S.C. SECTION 1350 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of AMCOL International Corporation (the "Company") certifies that the quarterly report on Form 10-Q/A of the Company for the nine months ended September 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in that Form 10-Q/A fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 13, 2005 /s/ Lawrence E. Washow ----------------------- Lawrence E. Washow Chief Executive Officer Date: April 13, 2005 /s/ Gary L. Castagna ----------------------- Gary L. Castagna Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----