================================================================================
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