10-K405 1 d10k405.txt FORM 10-K405 =============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------- FORM 10-K (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2001 [ ] 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 incorporation or organization) (I.R.S. Employer Identification No.) One North Arlington, 1500 West Shure Drive, Suite 500 Arlington Heights, Illinois 60004-7803 (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (847) 394-8730 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: $.01 par value Common Stock (Title of Class) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of the $.01 par value Common Stock held by non-affiliates of the registrant on February 28, 2002, based upon the closing sale price on that date as reported in The Wall Street Journal was approximately $137.1 million. Registrant had 28,605,033 shares of $.01 par value Common Stock outstanding as of February 28, 2002. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Proxy Statement to be dated on or before April 9, 2002 are incorporated by reference into Part III hereof. =============================================================================== PART I ITEM 1. BUSINESS INTRODUCTION AMCOL International Corporation was originally incorporated in South Dakota in 1924 as the Bentonite Mining & Manufacturing Company. Its name was changed to American Colloid Company in 1927, and in 1959, the Company was reincorporated in Delaware. In 1995, its name was changed to AMCOL International Corporation. Except as otherwise noted, or indicated by context, the term "Company" refers to AMCOL International Corporation and its subsidiaries. The Company operates in two major industry segments: minerals and environmental. The Company also operates a transportation business. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business, which provide services to both the Company's plants and outside customers. The following table sets forth the percentage contributions to net sales of the Company attributable to its minerals, environmental and transportation segments for the last three calendar years. The percentages include intersegment shipping revenues. Percentage of Sales ----------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------- Minerals 52% 55% 52% Environmental 36% 33% 37% Transportation 12% 12% 11% ------- ------- ------ 100% 100% 100% ======= ======= ====== ----------------------------------------------------------------------------- Net revenues, operating profit, assets, depreciation, depletion and amortization, capital expenditures and research and development expenditures attributable to each of the Company's business segments are set forth in Note 3 of the Company's Notes to Consolidated Financial Statements included elsewhere herein, which Note is incorporated herein by reference. DISCONTINUED OPERATIONS In 2001, the Company sold its U.K. metalcasting business to a group comprised in part of former management of the business. Included in the sale were machinery and equipment. The acquirer entered into a license agreement for the right to use trademarks for a period of ten years, and will lease land and buildings from the Company. The Company did not receive any proceeds from the sale. The U.K. metalcasting business was a component entity of the Company's minerals segment. In 2000, the Company closed its U.K. cat litter business. Certain assets were sold to various outside parties for $720 thousand. The closure was completed in 2001. In 2000, the Company sold its absorbent polymers business to BASF Aktiengesellschaft ("BASF") under the terms of an Asset and Stock Purchase Agreement dated November 22, 1999 (the "Purchase Agreement"), as amended. The Purchase Agreement provided for the transfer to BASF of the following: (i) all of the shares of capital stock of the Company's indirect subsidiaries: Chemdal Corporation and Chemdal Asia Ltd.; and (ii) all other assets of the Company and its designated subsidiaries related primarily to the absorbent polymers business. The total consideration paid to the Company by BASF was $656.5 million. The sale was approved by the Company's shareholders in May 2000 and the transaction closed on June 1, 2000. 2 The Company adopted a plan of partial liquidation in connection with the sale of the absorbent polymers business pursuant to which the Company distributed $14.00 per share to its shareholders, which represented a significant portion of the net proceeds from the sale, on June 30, 2000. MINERALS The Company's minerals business is principally conducted through its wholly owned subsidiaries, American Colloid Company in the United States and Canada, Volclay Siam Ltd. in Thailand, Volclay Korea Ltd. in South Korea, Volclay Pty., Ltd. in Australia, and through its joint venture companies, Redhill Volclay Company Ltd. in China, Volclay de Mexico in Mexico, Ashapura Volclay Ltd. in India, Egypt Mining & Drilling Chemicals Co. in Egypt, Volclay DongMing Industrial Minerals Co. in China, and Nissho Iwai Bentonite Company in Japan. The Company also has a 20% equity interest in Ashapura Minechem Ltd., a publicly traded Indian bentonite producer. Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to 50 feet under overburden of up to 60 feet. There are two basic types of bentonite, each having different chemical and physical properties. These are commonly known as sodium bentonite and calcium bentonite. Sodium bentonite is generally referred to as western bentonite because it predominately occurs in the Western United States. Sodium bentonites of lesser purity occur outside the United States. Calcium bentonite is generally referred to as southern bentonite in the United States and as fuller's earth outside the United States. Calcium bentonites mined outside the United States are commonly activated with sodium carbonate to produce properties similar to natural sodium bentonite. The Company's principal bentonite products are marketed under various internationally registered trade names, including VOLCLAY(R), PANTHER CREEK(R), PREMIUM GEL(R) and ADDITROL(R). The Company's cat litter is sold under various trade names and private labels. Trade names include NATURAL SELECT(R), CAREFREE KITTY(R), PREMIUM CHOICE(R), CAT TAILS(R), CATS PAW(R) and PAMPER CAT(R). PRINCIPAL PRODUCTS AND MARKETS Durable Goods Metalcasting. In the formation of sand molds for metal castings, sand is bonded with bentonite and various other additives to yield desired casting form and surface finish. The Company produces blended mineral binders containing sodium and calcium bentonite, sold under the trade name ADDITROL(R). In addition, several high-performance specialty products are sold to foundries and companies that service foundries. Iron Ore Pelletizing. The Company supplies sodium bentonite for use as a pelletizing aid in the production of taconite pellets in North America. Well Drilling. Sodium bentonite and leonardite, a form of oxidized lignite mined and processed by the Company in North Dakota, are components of drilling fluids used in oil and gas well drilling. Bentonite imparts thickening and suspension properties, which facilitate the transport of rock cuttings to the surface during the drilling process. Drilling fluids lubricate the drilling bit and coat the underground formations to prevent hole collapse and drill bit seizing. The Company's primary trademark for this application is PREMIUM GEL(R). Other Industrial. The Company produces bentonite and bentonite blends for the construction industry, which are used as a plasticizing agent in cement, plaster and bricks, and as an emulsifier in asphalt. Consumable Goods Cat Litter. The Company produces and markets a sodium bentonite-based, scoopable (clumping) cat litter. The Company markets a traditional cat litter to complement its line of scoopable cat litter products to the pet trade sector of the 3 market. The Company's scoopable products' clump-forming capability traps urine, allowing for easy removal of the odor-producing elements from the litter box. Scoopable cat litter has grown to 58% of the U.S. grocery market for cat litter in 2001 from 0.4% in 1989, and to 74% of the mass merchandise market for cat litter from no representation in 1989. The scoopable cat litter products are sold primarily to private label grocery and mass merchandisers, though the Company also sells its own brands to the grocery, pet store and mass markets. The Company's products are marketed under various trade names. Fine Chemicals. Purified grades of sodium bentonite are marketed to the pharmaceutical and cosmetics industries. Small amounts of purified bentonite act as a binding agent for pharmaceutical tablets, and bentonite's swelling property aids in tablet disintegration. Bentonite also acts as a thickening and suspension agent in lotions. Other specialized uses include flow control additives and beverage clarification. Agricultural. Sodium bentonite and calcium bentonites are sold as pelletizing aids in livestock feed and as anticaking agents for livestock feed in storage or during transit. SALES AND DISTRIBUTION In 2001, the top three customers of the minerals segment were located in North America and accounted for approximately 22% of the segment sales worldwide. The Company has established industry-specialized sales groups staffed with technically oriented salespersons serving each of the Company's major markets. Certain groups have networks of distributors and representatives, including companies that warehouse products at strategic locations. Most customers in the metalcasting industry are served on a direct basis by teams of Company sales, technical and manufacturing personnel. The Company also provides training courses and laboratory testing for customers who use the Company's products in the metalcasting process. Sales to the oil and gas well drilling industry are primarily made directly to oil and gas well drilling fluid service companies, both under the Company's trade name and under private label. Because bentonite is a major component of drilling fluids, two service companies have captive bentonite operations. The Company's potential market, therefore, generally is limited to those service organizations that are not vertically integrated, or do not have long-term supply arrangements with other bentonite producers. Sales to the cat litter market are made on a direct basis and through industry brokers. All sales to the iron ore pelletizing industry are made directly to the end user. Sales to the Company's remaining markets are made primarily through independent distributors and representatives. COMPETITION The Company is one of the largest producers of bentonite products globally. There are at least four other major North American producers of sodium bentonite and at least one other major domestic producer of calcium bentonite. Two of the North American producers are companies primarily in other lines of business with substantially greater financial resources than the Company. There is also substantial global competition. The Company's bentonite operations outside North America compete with more than ten other bentonite producers. Competition, in both the Company's domestic and international markets, is essentially a matter of product quality, price, logistics, service and technical support. With greater attention to market growth opportunities in emerging economic regions, competition among the significant bentonite producers has become quite vigorous. SEASONALITY Although business activities in certain of the industries in which the Company's mineral products are sold, e.g. oil and gas well drilling and construction, are subject to factors such as weather; however the Company does not consider its minerals business, as a whole, to be seasonal. 4 ENVIRONMENTAL PRINCIPAL PRODUCTS AND MARKETS Through its wholly owned subsidiaries, Colloid Environmental Technologies Company (CETCO) in the United States and Canada, CETCO Korea Ltd., CETCO Poland Sp. z o.o. and CETCO (Europe) Ltd. in the United Kingdom, the Company sells sodium bentonite, products containing sodium bentonite, and other products, services, and equipment for use in environmental and construction applications. CETCO sells bentonite and its geosynthetic clay liner products under the BENTOMAT(R) and CLAYMAX(R) trade names for lining and capping landfills and for containment in tank farms, leach pads, waste stabilization lagoons, slurry walls and wetlands reclamation applications. The Company's VOLCLAY(R) Waterproofing System is sold to the non-residential construction industry. This line includes VOLTEX(R), a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite. VOLTEX(R) is installed to prevent leakage through underground foundation walls and slabs. The following products round out the principal components of the product line: VOLCLAY PANELS(R), also used for below-grade waterproofing of walls and slabs; WATERSTOP-RX(R), a joint sealant product; and VOLCLAY SWELLTITE(R), a waterproofing membrane for concrete split slabs and plaza areas. Bentonite-based flocculants and customized equipment are used to remove emulsified oils and heavy metals from wastewater. Bentonite-based products are formulated to solidify liquid waste for proper disposal in landfills. These products are sold primarily under the SYSTEM-AC(R), RM-10(R) and SORBOND(R) trade names. CETCO's environmental offshore services group employs CRUDESORB(R) filtration technology, used primarily on offshore oil production platforms. CETCO employs several technologies to allow platform operators to maintain compliance with regulatory requirements governing discharge of waste generated during oil production. CETCO's filtration technology is marketed with all necessary equipment, proprietary filter media and trained professional service personnel. The Company is also actively involved in providing wastewater treatment solutions to pipeline operators and the cruise line industry to enable operators to meet wastewater discharge requirements. CETCO's drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling and mineral exploration. The products are used to install monitoring wells and water wells, rehabilitate existing water wells and seal abandoned exploration drill holes. VOLCLAY(R) GROUT, BENTOGROUT(R) and VOLCLAY(R) TABLETS are among the trade names for products used in these applications. Horizontal and directional drilling applications utilizing HYDRAUL-EZ(R) represent a new market area for CETCO drilling products. COMPETITION CETCO has three principal competitors in the geosynthetic clay liner market. The construction and wastewater treatment product lines are specialized businesses that compete primarily with alternative technologies. The groundwater monitoring, well drilling and sealants products compete with the Company's traditional rivals in the sodium bentonite business. The environmental offshore services group competes with several larger oil services companies using different technology. Competition is based on product quality, service, price, technical support and availability of product. Historically, the competition has been vigorous. SALES AND DISTRIBUTION In 2001, two customers accounted for approximately 13% of the environmental segment sales. CETCO products are sold domestically and internationally. CETCO sells most of its products through independent distributors and commissioned representatives. CETCO employs technically oriented marketing personnel to support its network of 5 distributors and representatives. Offshore customers are primarily major oil companies to which products are sold on a direct basis. SEASONALITY Much of the business in the environmental sector is impacted by weather and soil conditions. Many of the products cannot be applied in harsh weather conditions and, as such, sales and profits tend to be stronger during the period from April through October. As a result, the Company considers this segment to be seasonal. MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS MINERAL RESERVES The Company has reserves of sodium and calcium bentonite at various locations throughout North America including Wyoming, South Dakota, Montana and Alabama. The Company, indirectly through its joint venture companies, has access to bentonite deposits in China, Egypt, India and Mexico. At 2001 consumption rates and product mix, the Company estimates its proven reserves of commercially usable sodium bentonite at approximately 30 years. The Company estimates its proven reserves of calcium bentonite at 18 years. While the Company, based upon its experience, believes that its reserve estimates are reasonable and its title and mining rights to its reserves are valid, the Company has not obtained any independent verification of such reserve estimates or such title or mining rights. The Company owns or controls the properties on which its reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of the Company's bentonite reserves are owned. All of the properties on which the Company's reserves are located are either physically accessible for the purposes of mining and hauling, or the cost of obtaining physical access would not be material. Of the Company's total bentonite reserves in North America, less than 40% are on unpatented mining claims owned or leased by the Company, on which the Company has the right to undertake regular mining activity. To retain possessory rights, a fee of $100 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. The Company believes that the unpatented mining claims that it owns have been located in compliance with all applicable federal, state and local mining laws, rules and regulations. The Company is not aware of any material conflicts with other parties concerning its claims. From time to time, members of Congress and members of the executive branch of the federal government have proposed amendments to existing federal mining laws. The various amendments would have had a prospective effect on mining operations on federal lands and include, among other things, the imposition of royalty fees on the mining of unpatented claims, the elimination or restructuring of the patent system and an increase in fees for the maintenance of unpatented claims. To the extent that future proposals may result in the imposition of royalty fees on unpatented lands, the mining of the Company's unpatented claims may become uneconomic, and royalty rates for privately leased lands may be affected. The Company cannot predict the form that any amendments might ultimately take or whether or when any such amendments might be adopted. The Company maintains a continuous program of worldwide exploration for additional reserves and attempts to acquire reserves sufficient to replenish its consumption each year, but it cannot assure that additional reserves will continue to become available. The Company oversees all of its mining operations, including its exploration activity and securing the necessary state and federal mining permits. 6 The following table shows a summary of minerals sold by the Company from active mining areas for the last three years in short tons, as well as mineral reserves by major mineral category:
----------------------------------------------------------------------------------------------------------------------------------- Tons Sold Mining Claims All amounts are in ------------------- ---------------------------- thousands of tons 2001 2000 1999 Wet Tons Assigned Unassigned Conversion Owned Unpatented Leased of Reserves Reserves Reserves Factor ** ----------------------------------------------------------------------------------------------------------------------------------- Sodium Bentonite Assigned ----------------------------------------------------------------------------------------------------------------------------------- Belle/Colony, SD 876 1,003 920 21,612 21,581 31 76.92% 660 374 20,578 ----------------------------------------------------------------------------------------------------------------------------------- Upton, WY 151 142 247 3,517 3,517 - 76.92% - 693 2,824 ----------------------------------------------------------------------------------------------------------------------------------- Lovell, WY 382 226 286 26,301 26,301 - 76.92% 15,496 10,322 483 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSIGNED 1,409 1,371 1,453 51,430 51,399 31 16,156 11,389 23,885 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Other/Unassigned (SD, WY, MT, NV) 1 2 - 63,373 256 63,117 76.92% 55,037 3,610 4,726 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL OTHER/UNASSIGNED 1 2 - 63,373 256 63,117 55,037 3,610 4,726 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- TOTAL SODIUM BENTONITE 1,410 1,373 1,453 114,803 51,655 63,148 71,193 14,999 28,611 -------------------------------------------------------------------------------------------------- 45% 55% 62% 13% 25% ----------------------------------------------------------------------------------------------------------------------------------- Calcium Bentonite Assigned ----------------------------------------------------------------------------------------------------------------------------------- Sandy Ridge, AL 145 193 205 3,674 3,674 - 72.70% 1,589 - 2,084 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSIGNED 145 193 205 3,674 3,674 - 1,589 - 2,084 ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Other/Unassigned - - - 99 - 99 76.92% - - 99 TOTAL OTHER/UNASSIGNED - - - 99 - 99 - - 99 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL CALCIUM BENTONITE 145 193 205 3,773 3,674 99 1,589 - 2,183 97% 3% 42% 0% 58% -------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Leonardite Gascoyne, SD 25 26 22 670 670 - 62.57% - - 670 ----------------------------------------------------------------------------------------------------------------------------------- TOTAL LEONARDITE 25 26 22 670 670 - - - 670 -------------------------------------------------------------------------------------------------- 100% 0% 0% 0% 100% ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- GRAND TOTALS 1,580 1,592 1,680 119,246 55,999 63,247 72,782 14,999 31,464 -------------------------------------------------------------------------------------------------- 47% 53% 61% 13% 26% -------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------------------
** Quantity of reserves that would be owned if patent was granted. Assigned reserves means reserves which could be reasonably expected to be processed in existing plants. Unassigned reserves means reserves which will require additional expenditures for processing facilities. Conversion factor means the percentage of reserves that will be available for sale after processing. The Company estimates that available supplies of other materials utilized in its minerals business are sufficient to meet its production requirements for the foreseeable future. MINING AND PROCESSING Bentonite is surface-mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway haul wagons for movement to processing plants. The mining and hauling of the Company's clay is done both by the Company and by independent contractors. Each of the Company's bentonite processing plants generally maintains stockpiles of unprocessed clay equaling approximately four to eight months' production requirements. At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized into shipping form, then chemically modified where needed and transferred to silos for automatic bagging or bulk shipment. Virtually all production is shipped as processed, rather than stored for inventory. 7 PRODUCT DEVELOPMENT AND PATENTS The Company works actively with customers in each of its major markets to develop commercial applications of specialized grades of bentonite. It maintains a bentonite research center and laboratory testing facility adjacent to its corporate headquarters. When a need for a product that will accomplish a particular goal is perceived, the Company works to develop the product, research its marketability and study the feasibility of its production. The Company also co-develops products with customers, or others, as needs arise. The Company's development efforts emphasize markets with which it is familiar and products for which it believes there is a viable market. The Company holds a number of U.S. and international patents covering the use of bentonite and products containing bentonite. The Company follows the practice of obtaining patents on new developments whenever feasible. The Company, however, does not consider that any one or more of such patents is material to its minerals and environmental businesses as a whole. RESEARCH AND DEVELOPMENT All Company business segments share research and laboratory facilities adjacent to the corporate headquarters. Technological developments are shared between the companies, subject to license agreements where appropriate. REGULATION AND ENVIRONMENTAL The Company believes it is in material compliance with applicable regulations now in effect for surface mining. Since reclamation of exhausted mining sites has been a regular part of the Company's surface mining operations for the past 33 years, maintaining compliance with current regulations has not had a material effect on mining costs. Reclamation costs are reflected in the prices of the bentonite sold. The grinding and handling of dried clay is part of the production process and, because it generates dust, the Company's mineral processing plants are subject to applicable clean air standards (including Title V of the Clean Air Act). All of the Company's plants are equipped with dust collection systems. The Company has not had, and does not presently anticipate, any significant regulatory problems in connection with its dust emission, though it expects ongoing expenditures for the maintenance of its dust collection systems and required annual fees. The Company's mineral operations are also subject to other federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Certain of these laws and regulations provide for the imposition of substantial penalties for noncompliance. While the costs of compliance with, and penalties imposed under, these laws and regulations have not had a material adverse effect on the Company, future events, such as changes in, or modified interpretations of, existing laws and regulations, enforcement policies, and further investigation or evaluation of potential health hazards of certain products, may give rise to additional compliance and other costs that could have a material adverse effect on the Company. TRANSPORTATION The Company operates a long-haul trucking business and a freight brokerage business primarily for delivery of finished products throughout the continental United States. Through its transportation operation, the Company is better able to control costs, maintain delivery schedules and assure equipment availability for delivery of its products. The long-haul trucking subsidiary performs transportation services on outbound movements from the Company's production plants and attempts to haul third parties' products on return trips whenever possible. In 2001, approximately 34% of the revenues of this segment involve services provided to the Company's domestic minerals and environmental segments. 8 CORPORATE ACTIVITIES - NANOCOMPOSITE PRODUCT DEVELOPMENT The Company is always seeking to develop broader-based technologies that may use bentonite for new, value-added applications. One such technology is nanocomposites for the plastics industry. In 1995, the Company established its Nanocor subsidiary to develop surface-modified bentonites suitable for the emerging nanocomposite market. The primary raw material is bentonite. For some applications, material will be purchased from third party suppliers. Surface treatment chemicals, added in the production process, are readily available on the merchant market. The Company is focusing its development on the use of bentonite as a functional additive for plastics. The technology consists of dispersing highly purified bentonite of nanometer size (one-billionth of a meter) in plastic resins. Plastic nanocomposites are specially engineered composite materials that exhibit superior mechanical, thermal, barrier and flame-retardant properties with lower densities than conventional composites, resulting in significantly lighter plastic articles. Nanocor has identified commercial applications for Nanomer(R) products in the consumer packaging, engineered products and performance coatings markets. Nanocor has established collaborative relationships with industry leaders in its primary target markets to facilitate the development and commercial introduction of Nanomer(R) products. Plastic nanocomposites provide better gas and moisture barrier protection and have more strength, stiffness, dimensional stability and heat resistance than plastics without additives. Plastic nanocomposites are generally able to achieve physical performance improvements comparable to or better than conventional composites at much lower densities. Plastic nanocomposites are also able to improve the strength and thermal stability properties of a plastic more consistently than conventional composites. Plastic nanocomposites are generally created through a two-step process. First, the nanometer size clay or synthetic chemical structure is purified and then conditioned to make it compatible with and dispersible in a plastic. The conditioning process varies depending on the type of plastic used. In the second step, the conditioned nanometer size material is dispersed in the plastic. The Company has a nanocomposite production facility in Aberdeen, MS. Sales to date have been insignificant. All costs, in excess of sales, associated with the development, production and sales of nanocomposites are included in corporate costs. FOREIGN OPERATIONS AND EXPORT SALES Approximately 17% of the Company's 2001 net sales were to customers in countries other than the United States. To enhance its overseas market penetration, the Company maintains mineral processing plants in the United Kingdom, Australia, Korea and Thailand, as well as a blending plant in Canada. Through joint ventures, the Company also has the capability to process minerals in Egypt, India, Mexico and China. Chartered vessels deliver large quantities of the Company's bulk, dried sodium bentonite to the plants in the United Kingdom, Australia and Thailand, where it is processed and mixed with other clays and distributed throughout Europe, Australia and Southeast Asia. The Company's U.S. bentonite is also shipped in bulk to Japan, where it is sold by the Japanese joint venture. In addition, the Company also maintains a worldwide network of independent dealers, distributors and representatives. The Company manufactures geosynthetic clay liners in the United Kingdom and Poland, primarily for the European market. The Company's international operations are subject to the usual risks of doing business abroad, such as currency fluctuations and devaluation, restrictions on the transfer of funds and import and export duties. See Note 3 of the Company's Notes to Consolidated Financial Statements included elsewhere herein. This Note is incorporated by reference for sales attributed to foreign operations and export sales from the United States. 9 EMPLOYEES As of December 31, 2001, the Company employed 1,141 persons, 350 of whom were employed outside of the United States. At December 31, 2001, there were approximately 680, 382 and 26 persons employed in the Company's minerals, environmental and transportation segments, respectively, along with 53 corporate employees. The corporate employees include personnel engaged in the nanocomposite research and development effort. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Approximately 64 of the Company's employees in the United States are represented by five labor unions, which have entered into separate collective bargaining agreements with the Company. Employee relations are considered good. 10 ITEM 2. PROPERTIES The Company and its subsidiaries operate the following plants, mines and other facilities, all of which are owned, except as noted:
---------------------------------------------------------------------------------------------------------------- LOCATION PRINCIPAL FUNCTION ---------------------------------------------------------------------------------------------------------------- MINERALS ---------------------------------------------------------------------------------------------------------------- Albion, MI /(1)/ Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Belle Fourche, SD Mine and process sodium bentonite ---------------------------------------------------------------------------------------------------------------- Butler, GA Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Chattanooga, TN Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Colony, WY (two plants) Mine and process sodium bentonite, package cat litter ---------------------------------------------------------------------------------------------------------------- Columbus, OH /(1)/ Blend ADDITROL(R); process chromite sand ---------------------------------------------------------------------------------------------------------------- Gascoyne, ND Mine and process leonardite ---------------------------------------------------------------------------------------------------------------- Granite City, IL /(1)/ Package cat litter; process chromite sand ---------------------------------------------------------------------------------------------------------------- Letohatchee, AL Package and load calcium bentonite ---------------------------------------------------------------------------------------------------------------- Lovell, WY /(3)/ Mine and process sodium bentonite ---------------------------------------------------------------------------------------------------------------- Lufkin, TX Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Neenah, WI Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Paris, TN Package cat litter ---------------------------------------------------------------------------------------------------------------- Sandy Ridge, AL Mine and process calcium bentonite; blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Toronto, Ontario, Canada /(3)/ Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Troy, IN Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Upton, WY Mine and process sodium bentonite, package cat litter ---------------------------------------------------------------------------------------------------------------- Waterloo, IA Blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- York, PA Blend ADDITROL(R); package cat litter ---------------------------------------------------------------------------------------------------------------- Beijing, China Sales Office ---------------------------------------------------------------------------------------------------------------- Birkenhead, Merseyside, U.K. /(2)//(3)/ Manufacture Bentomat(R) geosynthetic clay liner; research laboratory; headquarters for CETCO (Europe) Ltd. ---------------------------------------------------------------------------------------------------------------- Chao Yang, LiaoNing, China Mine and process calcium bentonite ---------------------------------------------------------------------------------------------------------------- Geelong, Victoria, Australia /(1)//(3)/ Process bentonite; blend ADDITROL(R) ---------------------------------------------------------------------------------------------------------------- Kyung-Buk, South Korea Mine and process bentonite ---------------------------------------------------------------------------------------------------------------- Rayong, Thailand Process bentonite ---------------------------------------------------------------------------------------------------------------- ENVIRONMENTAL ---------------------------------------------------------------------------------------------------------------- Broussard, LA Environmental Offshore operations and distribution ---------------------------------------------------------------------------------------------------------------- Fairmount, GA Manufacture Bentomat(R) and Claymax(R) geosynthetic clay liners ---------------------------------------------------------------------------------------------------------------- Houston, TX /(1)/ Environmental Offshore sales ---------------------------------------------------------------------------------------------------------------- Lovell, WY /(3)/ Manufacture Bentomat(R) and Claymax(R) geosynthetic clay liners ---------------------------------------------------------------------------------------------------------------- New Orleans, LA /(1)/ Environmental Offshore sales ---------------------------------------------------------------------------------------------------------------- Villa Rica, GA Manufacture components for geosynthetic clay liners ---------------------------------------------------------------------------------------------------------------- Birkenhead, Merseyside, U.K. /(2)//(3)/ Manufacture Bentomat(R) geosynthetic clay liner; research laboratory; headquarters for CETCO (Europe) Ltd. ---------------------------------------------------------------------------------------------------------------- Copenhagen, Denmark (1) Sales and distribution for CETCO (Europe) Ltd. ---------------------------------------------------------------------------------------------------------------- Geelong, Victoria, Australia /(1)//(3)/ Sales and distribution for CETCO products ---------------------------------------------------------------------------------------------------------------- Paris, France /(1)/ Sales and distribution for CETCO (Europe) Ltd. ---------------------------------------------------------------------------------------------------------------- Seoul, South Korea /(1)/ Sales and distribution for CETCO Korea Ltd. ---------------------------------------------------------------------------------------------------------------- Singapore /(1)/ Sales and distribution for CETCO Environmental Technologies Pte Ltd. ---------------------------------------------------------------------------------------------------------------- Szczytno, Poland Manufacture Bentomat(R) and Claymax(R) geosynthetic clay liners ---------------------------------------------------------------------------------------------------------------- Tanager, Norway /(1)/ Sales and distribution for CETCO (Europe) Ltd. ---------------------------------------------------------------------------------------------------------------- Toronto, Ontario, Canada /(3)/ Sales and distribution for CETCO Canada Ltd. ---------------------------------------------------------------------------------------------------------------- TRANSPORTATION ---------------------------------------------------------------------------------------------------------------- Scottsbluff, NE Transportation headquarters and terminal ---------------------------------------------------------------------------------------------------------------- CORPORATE ---------------------------------------------------------------------------------------------------------------- Arlington Heights, IL /(1)/ Corporate headquarters; CETCO headquarters; American Colloid Company headquarters; Nanocor, Inc. headquarters; research laboratory Aberdeen, MS Process purified bentonite (Nanocor, Inc.) ----------------------------------------------------------------------------------------------------------------
/(1)/ Leased /(2)/ Certain offices and facilities are leased. /(3)/ Shared facilities between minerals and environmental segment. 11 ITEM 3. LEGAL PROCEEDINGS In 1998, serveral claims were filed in Chester, England against certain of the Company's subsidiaries. The claims alleged property damage, nuisance and personal injury based on the accidental release of dust from Volclay Limited's facility in Wallasey, England. The claims are were made on behalf of up to 1,600 persons who, at some point during the period since 1965 resided in the vicinity of the Wallasey, England facility. In July 2001, the Company materially settled this litigation, for a total cost of $6.5 million. The Company is party to a number of lawsuits arising in the normal course of its business. The Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position. The Company's processing operations require permits from various governmental authorities. From time to time, the Company has been contacted by government agencies with respect to required permits or compliance with existing permits. While the Company has been notified of certain situations of non-compliance, management does not expect the fines or the cost of compliance, if any, to be significant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF REGISTRANT
=================================================================================================================================== NAME AGE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS =================================================================================================================================== Gary L. Castagna 40 Senior Vice President and Chief Financial Officer of the Company since February 2001; prior thereto, a consultant to AMCOL since June 2000; prior thereto, Vice President of the Company and President of Chemdal International Corporation (this business, a former subsidiary of AMCOL, consisted of the absorbent polymers business that was sold to BASF AG in June 2000) since August 1997; prior thereto, Vice President of Finance for Chemdal International Corporation. Since January 2000, Director of M~Wave Incorporated, a manufacturer and distributor of printed circuit boards. ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Lloyd F. Love 55 Vice President and Chief Information Officer of the Company since July 1999; prior thereto, Chief Information Officer of Baxter Credit Union since 1997; prior thereto, Vice President, Information Services of Caremark International since 1992 (acquired by MedPartners in mid-1996). ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Peter L. Maul 52 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995. ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Ryan F. McKendrick 50 Vice President of the Company and President of Colloid Environmental Technologies Company since November 1998; prior thereto, Vice President of Colloid Environmental Technologies Company since 1994. ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Gary Morrison 46 Vice President of the Company and President of American Colloid Company since February 2000; prior thereto, Executive Vice President of American Colloid Company since 1998; prior thereto, Vice President of American Colloid Company since 1994. =================================================================================================================================== Continued...
12 EXECUTIVE OFFICERS OF REGISTRANT (CONTINUED)
=================================================================================================================================== NAME AGE PRINCIPAL OCCUPATION FOR LAST FIVE YEARS =================================================================================================================================== Clarence O. Redman 59 Secretary of the Company since 1982. Clarence O. Redman is of counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company, since October 1997; prior thereto, an individual and corporate partner and Chief Executive Officer of the law firm of Keck, Mahin & Cate; a Director since 1989. ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Lawrence E. Washow 48 Chief Executive Officer since May 2000; President of the Company since May 1998; Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President of the Company since 1994 and President of Chemdal International Corporation since 1992; a Director since February, 1998. ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- Frank B. Wright, Jr. 53 Vice President of the Company and President of Volclay International Corporation; also President of American Colloid Company from August, 1996 to February, 2000; prior thereto, Manager of International Business Development for American Colloid Company since 1995. Mr. Wright has resigned his position, effective April 15, 2002. ===================================================================================================================================
All executive officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election, or when their respective successors are elected and shall have qualified. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock trades on The New York Stock Exchange under the symbol ACO. The following table sets forth, for the periods indicated, the high and low closing sale prices of the common stock, as reported by The New York Stock Exchange, and cash dividends declared per share.
----------------------------------------------------------------------------------------------------------------- Stock Price Cash Dividends --------------------------------------- High Low Declared Per Share ================================================================================================================= 1st Quarter $ 5.000 $ 3.550 $ 0.010 ------------------------------------------------------------------------- 2nd Quarter 6.240 3.840 0.015 Fiscal Year Ended December 31, 2001: ------------------------------------------------------------------------- 3rd Quarter 6.700 5.550 0.015 ------------------------------------------------------------------------- 4th Quarter 7.200 5.600 0.015 ----------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------- 1st Quarter $ 16.125 $ 13.625 $ 0.070 ------------------------------------------------------------------------- 2nd Quarter 17.500 12.813 0.070 Fiscal Year Ended December 31, 2000: ------------------------------------------------------------------------- 3rd Quarter 5.375 3.000 0.010 ------------------------------------------------------------------------- 4th Quarter 7.375 4.250 0.010 -----------------------------------------------------------------------------------------------------------------
The Company has paid cash dividends every year for over 64 years. In addition, the Company distributed $14.00 per share to its shareholders on June 30, 2000 in connection with a plan of partial liquidation related to the sale of the absorbent polymers business. As of February 22, 2002, there were 3,134 holders of record of the common stock, excluding shares held in street name. 13 ITEM 6. SELECTED FINANCIAL DATA The following is selected financial data for the Company and its subsidiaries for the five years ended December 31, 2001. Per share amounts have been adjusted to reflect a three-for-two stock split in December 1997, effected in the form of a stock dividend. SUMMARY OF OPERATIONS (In thousands, except ratios and share and per share amounts)
============================================================================================================================ 2001 2000 1999 1998 1997 ============================================================================================================================ Operations Data ---------------------------------------------------------------------------------------------------------------------------- Net sales $ 275,288 $ 284,142 $ 296,118 $ 292,783 $ 283,143 ---------------------------------------------------------------------------------------------------------------------------- Gross profit 66,305 68,398 67,313 64,218 56,081 ---------------------------------------------------------------------------------------------------------------------------- General, selling and administrative expenses 47,740 48,071 56,925 50,416 43,688 ---------------------------------------------------------------------------------------------------------------------------- Business realignment and other charges - 2,357 11,575 - - ---------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) 18,565 17,970 (1,187) 13,802 12,393 ---------------------------------------------------------------------------------------------------------------------------- Investment income 3,015 9,816 - - - ---------------------------------------------------------------------------------------------------------------------------- Change in value of interest rate swap (401) - - - - ---------------------------------------------------------------------------------------------------------------------------- Net interest expense (2,196) (3,160) (3,440) (2,121) (1,456) ---------------------------------------------------------------------------------------------------------------------------- Net other income (expense) 223 594 (1,069) 694 148 ---------------------------------------------------------------------------------------------------------------------------- Pretax income (loss) 19,206 25,220 (5,696) 12,375 11,085 ---------------------------------------------------------------------------------------------------------------------------- Income taxes (benefit) 6,155 7,155 (1,815) 3,524 4,127 ---------------------------------------------------------------------------------------------------------------------------- Income (loss) from joint ventures 28 470 448 8 - ---------------------------------------------------------------------------------------------------------------------------- Minority interest in net loss of subsidiary 59 - - - - ---------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 13,138 18,535 (3,433) 8,859 6,958 ---------------------------------------------------------------------------------------------------------------------------- Income from discontinued operations (879) (8,185) 25,667 13,226 14,087 ---------------------------------------------------------------------------------------------------------------------------- Gain on disposal of discontinued operations 1,154 316,330 - - - ---------------------------------------------------------------------------------------------------------------------------- Extraordinary loss on early extinguishment of debt - (443) - - - ---------------------------------------------------------------------------------------------------------------------------- Cumulative effect of change in accounting Principle (net of tax) (182) - - - - ---------------------------------------------------------------------------------------------------------------------------- Net income 13,231 326,237 22,234 22,085 21,044 ---------------------------------------------------------------------------------------------------------------------------- Per Share Data ---------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share /(2)/ ---------------------------------------------------------------------------------------------------------------------------- Continuing operations 0.47 0.67 (0.13) 0.32 0.25 ---------------------------------------------------------------------------------------------------------------------------- Discontinued operations 0.01 11.20 0.96 0.47 0.49 ---------------------------------------------------------------------------------------------------------------------------- Extraordinary loss - (0.02) - - - ---------------------------------------------------------------------------------------------------------------------------- Cumulative effect of change in accounting principle (net of tax) (0.01) - - - - ---------------------------------------------------------------------------------------------------------------------------- Net income 0.47 11.85 0.83 0.79 0.74 ---------------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per share /(3)/ ---------------------------------------------------------------------------------------------------------------------------- Continuing operations 0.43 0.62 (0.12) 0.31 0.24 ---------------------------------------------------------------------------------------------------------------------------- Discontinued operations 0.01 10.29 0.94 0.46 0.48 ---------------------------------------------------------------------------------------------------------------------------- Extraordinary loss - (0.01) - - - ---------------------------------------------------------------------------------------------------------------------------- Cumulative effect of change in accounting principle (net of tax) (0.01) - - - - ---------------------------------------------------------------------------------------------------------------------------- Net income 0.43 10.90 0.82 0.78 0.72 ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity /(1)/ 4.98 4.69 6.94 6.44 6.18 ---------------------------------------------------------------------------------------------------------------------------- Dividends 0.06 0.16 0.27 0.23 0.21 ---------------------------------------------------------------------------------------------------------------------------- Partial liquidation distribution - 14.00 - - - ---------------------------------------------------------------------------------------------------------------------------- Continued...
/(1)/ Based on the number of common shares outstanding at the end of the year. /(2)/ Based on the weighted average common shares outstanding for the year. /(3)/ Based on the weighted average common shares outstanding, including common stock equivalents, for the year. 14 SUMMARY OF OPERATIONS (continued) (In thousands, except ratios and share and per share amounts)
============================================================================================================================ 2001 2000 1999 1998 1997 ============================================================================================================================ Shares Outstanding Data ---------------------------------------------------------------------------------------------------------------------------- End of period 28,256,389 28,781,304 26,852,056 26,869,372 28,474,198 ---------------------------------------------------------------------------------------------------------------------------- Weighted average for the period-basic 28,193,234 27,523,157 26,772,569 27,918,391 28,488,527 ---------------------------------------------------------------------------------------------------------------------------- Incremental impact of stock options 2,412,826 2,433,533 426,694 467,469 636,641 ---------------------------------------------------------------------------------------------------------------------------- Weighted average for the period-diluted 30,606,060 29,956,690 27,199,263 28,385,860 29,125,168 ---------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data ---------------------------------------------------------------------------------------------------------------------------- Current assets $ 101,177 $ 259,980 $ 138,614 $ 141,442 $ 129,537 ---------------------------------------------------------------------------------------------------------------------------- Cash equivalents included in current assets - 168,549 - - - ---------------------------------------------------------------------------------------------------------------------------- Net current assets of discontinued operations included in current assets 798 - 47,668 41,859 43,799 ---------------------------------------------------------------------------------------------------------------------------- Net property and equipment 72,348 74,665 78,911 80,158 81,978 ---------------------------------------------------------------------------------------------------------------------------- Long-term assets 22,805 31,122 102,164 105,190 113,408 ---------------------------------------------------------------------------------------------------------------------------- Net long-term assets of discontinued operations included in long-term assets 311 6,932 87,554 82,958 88,090 ---------------------------------------------------------------------------------------------------------------------------- Total assets 196,330 365,767 319,689 316,874 324,923 ---------------------------------------------------------------------------------------------------------------------------- Current liabilities 31,083 169,584 33,557 51,448 45,594 ---------------------------------------------------------------------------------------------------------------------------- Net current liabilities of discontinued operations included in current liabilities - 1,484 - - - ---------------------------------------------------------------------------------------------------------------------------- Accrued income taxes related to sale of discontinued operations included in current liabilities - 135,095 - - - ---------------------------------------------------------------------------------------------------------------------------- Long-term debt 13,245 51,334 91,067 93,359 93,187 ---------------------------------------------------------------------------------------------------------------------------- Other long-term liabilities 11,275 9,942 7,692 8,869 10,199 ---------------------------------------------------------------------------------------------------------------------------- Stockholders' equity 140,727 134,907 186,448 172,914 175,943 ---------------------------------------------------------------------------------------------------------------------------- Other Statistics for Continuing Operations ---------------------------------------------------------------------------------------------------------------------------- Depreciation and amortization $ 17,427 $ 17,000 $ 19,093 $ 17,195 $ 16,888 ---------------------------------------------------------------------------------------------------------------------------- Capital expenditures 14,730 14,975 15,796 23,976 26,549 ---------------------------------------------------------------------------------------------------------------------------- Gross profit margin 24.1% 24.1% 23.8% 21.9% 19.8% ---------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) margin 6.7% 6.3% (0.4%) 4.7% 4.4% ---------------------------------------------------------------------------------------------------------------------------- Operating profit margin before business realignment and other charges 6.7% 7.2% 3.7% 4.7% 4.4% ---------------------------------------------------------------------------------------------------------------------------- Pretax profit (loss) margin 7.0% 8.9% (1.9%) 4.2% 3.9% ---------------------------------------------------------------------------------------------------------------------------- Effective tax (benefit) rate 32.0% 28.4% (31.9%) 28.5% 37.2% ---------------------------------------------------------------------------------------------------------------------------- Net profit (loss) margin 4.8% 6.5% (1.2%) 3.0% 2.5% ---------------------------------------------------------------------------------------------------------------------------- Return on ending equity 9.3% 13.7% (1.8%) 5.1% 4.0% ----------------------------------------------------------------------------------------------------------------------------
15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Management's Discussion and Analysis of Financial Condition and Results of Operations describes relevant aspects of the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. As such, the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented are impacted by the Company's accounting policies. Described here are the critical accounting policies of the Company: Allowance for doubtful accounts: The allowance for doubtful accounts is based upon historical experience and specific customer collection issues identified by management. A change in a customer's financial position or liquidity can adversely impact collectibility of accounts receivable and future operating results. Inventories: Inventories are valued at the lower of the actual cost to manufacture or purchase or at their current estimated market value. Management regularly reviews inventory quantities on hand and records an allowance for excess and obsolete inventory based primarily on estimated demand requirements for the next twelve months. In certain businesses of the Company's, such as the domestic cat litter business, packaging changes can occur rapidly which may leave the Company exposed to excess or obsolete inventories. Therefore, while management makes every effort to ensure the accuracy of forecasts of future product demand, significant unanticipated changes in demand can have an impact on the reported value of inventories. Income Taxes: In preparing the consolidated financial statements management is required to estimate the income tax obligations in each of the jurisdictions in which we operate. This process involves estimating our actual current tax liabilities together with assessing temporary differences arising from differing treatment of items for tax and accounting purposes. The differences result in deferred tax assets and liabilities, which are recorded on our consolidated balance sheets. Management must assess the likelihood that our deferred tax assets will be recovered from future taxable income. A valuation allowance is recorded to the extent management believes that recovery is not likely. Adjustments to the valuation allowance, resulting from changes in assumptions about future taxable income and other factors, may increase or decrease the tax expense included in the consolidated statement of operations. Long-lived assets: Management evaluates the realizability of long-lived assets, including property and equipment, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss exists when estimated undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Any impairment loss recognized represents the excess of the asset's carrying value over its estimated fair value. Estimating future cash flows from the use and eventual disposition of an asset requires management to make assumptions about future conditions and events. These assumptions have a direct impact on the amounts reported. Other Valuation Allowances and Accrued Liabilities: Management is required to make estimates and judgments in connection with other accounting policies, including those related to retirement benefits, contingencies and litigation. We base our estimates and judgments related to these matters on actuarially determined estimates in the case of retirement benefits, the nature of the matter and other factors in the case of contingencies and litigation. If management were to use different assumptions in forming these estimates, this could have a material impact on the amounts recorded. LIQUIDITY AND FINANCIAL RESOURCES At December 31, 2001, the Company had outstanding debt of $13.2 and cash and cash equivalents of $10.3 million, compared with $52.4 million of outstanding debt and $176.8 million of cash and cash equivalents at December 31, 2000. Approximately $130 million of the cash equivalents on hand at December 31, 2000 were used to pay income taxes in the first quarter of 2001 that were related to the gain on the sale of the absorbent polymers segment, which was sold on June 1, 2000. 16 The remaining cash equivalents were primarily used to pay down debt. Long-term debt represented 8.6% of total capitalization at December 31, 2001, compared with 27.6% at December 31, 2000. The Company had a current ratio of 3.25-to-1 at December 31, 2001 and working capital of approximately $70.1 million, compared with 1.53-to-1 and $90.4 million, respectively, at December 31, 2000. Excluding cash equivalents of $168.5 million and accrued income taxes of $135.9, which were related to the sale of the absorbent polymers segment, would have resulted in a current ratio of 2.72-to-1 and working capital of $57.8 million at December 31, 2000. The following schedule details of the Company's contractual obligations at December 31, 2001:
-------------------------------------------------------------------------------------------------------------------------------- Payments due by period -------------------------------------------------------------------------------------- Less Total than 1 1-3 4-5 After 5 Year Years Years Years -------------------------------------------------------------------------------------------------------------------------------- (in millions) -------------------------------------------------------------------------------------------------------------------------------- Long-term debt $ 13.2 $ - $ 8.2 $ - $ 5.0 Operating leases 12.0 2.8 3.7 3.0 2.5 --------------- -------------- -------------- -------------- -------------- Total contractual cash obligations $ 25.2 $ 2.8 $ 11.9 $ 3.0 $ 7.5 =============== ============== ============== ============== ============== --------------------------------------------------------------------------------------------------------------------------------
Long-term debt includes $7.0 million on a revolving credit agreement, which provides for a commitment of $125 million in borrowing capacity and matures on October 31, 2003 with an option to extend for three additional one-year periods. Borrowing rates on the facility can range from 0.25% to 0.75% above the 3-month LIBOR depending upon the capitalization ratios and amount of the credit line used. The facility requires certain covenants to be met including specific amounts of working capital, tangible net worth, and limitations on additional borrowings and guarantees. The Company was in compliance with these covenants at December 31, 2001. The Company borrowed $5.0 million under an industrial revenue bond in 2000 to construct a new minerals processing facility in Butler, Georgia. The bond matures in 2015 and is secured by the facility's assets. Operating leases relate to noncancelable obligations for railroad cars, truck trailers, computer software, office equipment, certain automobiles, and office and plant facilities. Capital expenditures for the year were $14.7 million while dividends paid to common shareholders totaled $1.6 million. The Company repurchased $7.8 million of its common stock in 2001 and received $3.1 in proceeds from the exercise of stock options. Debt repayments totaled $39.1 million. Investing and financing activities were funded by cash flow from operations which was $22.9 million and utilization of excess cash equivalents of approximately $37.0 million. In February 2001 the board of directors of the Company authorized a stock repurchase plan. The plan calls for management to purchase $10.0 million of the Company's common stock over a two-year period. Approximately $2.2 million remains in the authorization at December 31, 2001. It is management's intention to fulfill the remaining authorization assuming the utilization of the funds for this purpose provides adequate value to the Company. Management believes that the Company has adequate resources to fund planned capital expenditures, dividend payments and anticipated working capital requirements through existing, available committed credit lines, cash on hand and future operating cash flow. RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 2001 Net sales declined by $8.9 million, or 3.1%, from 2000 to 2001 and by $12.0 million, or 4.0%, from 1999 to 2000. The 2000 to 2001 sales decrease was primarily attributed to lower volume and pricing in certain domestic minerals businesses. Sales declined from 1999 to 2000 due to the divestiture of certain underperforming environmental segment businesses late in 1999. Gross profit declined by $2.1 million, or 3.1%, from 2000 to 2001 and increased by $1.1 million from 1999 to 2000, or 17 1.6%. The 2000 to 2001 decrease was commensurate with the sales decrease for the period and the 1999 to 2000 increase was attributed to the divesture of the underperforming environmental segment businesses mentioned previously. Operating profits increased by $0.6 million, or 3.3%, from 2000 to 2001. The 2000 period included business realignment charges of $2.4 million consisting of fees paid to professional firms that were enlisted to assist the Company in exploring various options for improving shareholder value. Operating profits for 2000 increased by $7.6 over 1999, after excluding the effect of $11.6 million of asset impairment charges taken in 1999. Again, the improved operating results were principally due to the divestiture in late 1999 of underperforming businesses in the environmental segment. Income from joint ventures was $0.4 million less in 2001 than in 2000. The Company recorded a write-down of its investment in a Chinese joint venture in 2001. The write-down reflects projected proceeds from the disposal of this investment which was under negotiation at the end of 2001. Income from continuing operations was $13.1 million, or $0.43 per diluted share, and $18.5, or $0.62 per diluted share, in 2001 and 2000, respectively, while the Company incurred a loss from continuing operations of $3.4 million, or $0.12 per diluted share in 1999. Interest income, net of income taxes, added $0.07 and $0.23 per diluted share to earnings in 2001 and 2000, respectively. Interest income was associated with the investment of proceeds from the sale of the absorbent polymers segment. The remaining proceeds from this sale were used to reduce long-term debt in the fourth quarter of 2001 and, therefore, the Company does not expect to realize material investment income in the future. Asset impairment charges related to the underperforming environmental segment businesses referred to previously reduced 1999 earnings by $0.30 per diluted share. Weighted average common and common equivalent shares increased by 2.1% from 2000 to 2001 and 10.1% from 1999 to 2000. The increase in 2000 was attributed to additional stock options issued upon completion of an equity restructuring that resulted from the sale of the absorbent polymers segment. Discontinued operations reflect the operating results of the U.K. metalcasting and cat litter businesses, which were sold in 2001, and the absorbent polymers segment, which was sold in 2000, for all periods presented. Income from discontinued operations was $0.3 million in 2001, or $0.01 per diluted share and $308.1 million in 2000, or $10.29 per diluted share. No proceeds were received in connection with the sale of the U.K metalcasting business. The acquirer will lease certain land and buildings from the Company and pay a royalty related to a license for use of certain trademarks of the Company. The license agreement has a ten year term and the royalty is based on sales by the acquiring entity. In connection with the sale of the U.K. metalcasting business the Company realized a loss on the disposal of assets of $4.8 million and tax benefit of $6.0 million. The tax benefit is associated with the write-off of the Company's investment in its U.K. minerals subsidiary. A charge of $0.01 per diluted share was recorded in 2001 related to the cumulative effect of a change in accounting principle. The charge relates to the adoption of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." An extraordinary charge of $0.01 per diluted share was recorded in 2000 to reflect costs associated with the early extinguishment of certain debt. Net income for 2001 was $13.2 million compared with $326.2 million in 2000. Income from discontinued operations in 2000 of $308.1 million was the primary reason for the difference. 18 A review of sales, gross profit, general, selling and administrative expenses and operating profit by segment follows:
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, Minerals ----------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 vs. 2000 2000 vs. 1999 ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------------------------------------- Product sales $ 133,903 89.3% $ 146,017 89.3% $ 142,061 89.8% Shipping revenue 16,042 10.7% 17,457 10.7% 16,197 10.2% ----------- ------- ----------- ------- ----------- ------- Net sales 149,945 100.0% 163,474 100.0% 158,258 100.0% (13,529) (8.3%) 5,216 3.3% ----------- ------- ----------- ------- ----------- ------- Cost of sales - product 106,314 70.9% 112,141 68.6% 108,478 68.5% Cost of sales - shipping 16,042 10.7% 17,457 10.7% 16,197 10.2% ----------- ------- ----------- ------- ----------- ------- Cost of sales 122,356 81.6% 129,598 79.3% 124,675 78.8% ----------- ------- ----------- ------- ----------- ------- Gross profit 27,589 18.4% 33,876 20.7% 33,583 21.2% (6,287) (18.6%) 293 0.9% General, selling and administrative expenses 12,892 8.6% 12,580 7.7% 13,403 8.5% 312 2.5% (823) (6.1%) ----------- ------- ----------- ------- ----------- ------- Operating profit 14,697 9.8% 21,296 13.0% 20,180 12.8% (6,599) (31.0%) 1,116 5.5% -----------------------------------------------------------------------------------------------------------------------------------
In the first quarter of 2001 the Company completed its planned exit from the U.K. cat litter business and the sale of its European cat litter business. On December 31, 2001, the Company completed the sale of its U.K. metalcasting business. The discussion of the mineral segment results excludes the U.K. cat litter and metalcasting businesses as they have been classified as discontinued operations for all periods reported. Sales declined 8.3% from 2000 to 2001 primarily from lower sales and volume levels in the domestic metalcasting and cat litter businesses. The cat litter business also experienced lower pricing in the second half of 2001. Sales increased by 3.3% from 1999 to 2000 through growth in the segment's international units and increased shipping revenues generated in the U.S. export business. Lower volume levels in the domestic metalcasting and cat litter businesses caused the 2001 gross margin and operating margin to declined by 230 and 320 basis points, respectively, from 2000 results. Gross margin declined by 50 basis points from 1999 to 2000 due to a greater amount of shipping revenues which do not generate profit. Lower personnel costs in the segment's domestic minerals businesses contributed to the increase in 2000 operating profit over 1999 results.
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, Environmental ----------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 vs. 2000 2000 vs. 1999 ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------------------------------------- Product sales $ 96,046 92.6% $ 89,315 91.1% $ 105,842 92.1% Shipping revenue 7,720 7.4% 8,695 8.9% 9,056 7.9% ----------- ------- ---------- ------- ----------- ------- Net sales 103,766 100.0% 98,010 100.0% 114,898 100.0% 5,756 5.9% (16,888) (14.7%) ----------- ------- ---------- ------- ----------- ------- Cost of sales - product 60,850 58.6% 58,385 59.6% 75,873 66.0% Cost of sales - shipping 7,720 7.4% 8,695 8.9% 9,056 7.9% ----------- ------- ---------- ------- ----------- ------- Cost of sales 68,570 66.1% 67,080 68.5% 84,929 73.9% Gross profit 35,196 33.9% 30,930 31.6% 29,969 26.1% 4,266 13.8% 961 3.2% General, selling and 20,042 19.3% 19,336 19.7% 25,980 22.6% 706 3.7% (6,644) -25.6% administrative expenses Business realignment and other charges - 0.0% - 0.0% 11,575 10.1% - 0.0% (11,575) NM Operating profit (loss) 15,154 14.6% 11,594 11.8% (7,586) -6.6% 3,560 30.7% 19,180 -252.8% -----------------------------------------------------------------------------------------------------------------------------------
Sales increased 5.9% in 2001 over 2000 primarily due to growth in the offshore services and European business units, while sales declined by 14.7% in 2000 from 1999 due to the sale of certain underperforming businesses at the end of 1999. Gross margins expanded by 230 basis points in 2001 from 2000 due to increased sales of more profitable products in the European business as well as lower production costs at that operation. 19 Sale of the aforementioned underperforming businesses led to a 550 basis point increase in gross margins from 2000 as compared to 1999 and contributed approximately $6.0 million to the reduction in general, selling and administrative expenses for the period. The segment also restructured its domestic operations which also caused reduced operating expenses in 2000. During 1999, the Company sold or closed operations that incurred more than $5.5 million in operating losses in that year. In the process of evaluating its ongoing business operation, the Company wrote down the carrying values of certain intangible and fixed assets by approximately $11.6 million. This charge included $2.1 million related to the January 2000 sale of the Company's Norwegian business. The remainder of the write down was largely related to goodwill not expected to be recovered by future cash flows.
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, Transportation ----------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 vs. 2000 2000 vs. 1999 ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------------------------------------- Net sales $ 33,133 100.0% $ 34,036 100.0% $ 34,632 100.0% $ (903) (2.7%) $ (596) (1.7%) Cost of sales 29,613 89.4% 30,444 89.4% 30,871 89.1% ----------- ------- ----------- ------- ---------- ------- Gross profit 3,520 10.6% 3,592 10.6% 3,761 10.9% (72) (2.0%) (169) (4.5%) General, selling and administrative expenses 2,157 6.5% 2,115 6.2% 2,130 6.2% 42 2.0% (15) (0.7%) ----------- ------- ----------- ------- ---------- ------- Operating profit 1,363 4.1% 1,477 4.4% 1,631 4.7% (114) (7.7%) (154) (9.4%) -----------------------------------------------------------------------------------------------------------------------------------
Approximately 34% of the segment's sales involve services provided to the Company's domestic minerals and environmental segments. Lower sales in 2001 were primarily due to reduced business levels with third party customers. The decrease in sales in 2000 from 1999 was due to the loss of the absorbent polymers segment volume following the sale of this segment on June 1, 2000. Gross margins for 2001 equaled 2000 as the mix of broker and trucking business was the same in both years. Average fuel costs in 2001 remained flat with 2000 levels. Gross margins decreased by 30 basis points in from 1999 to 2000 due to higher fuel costs.
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, Corporate ----------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 vs. 2000 2000 vs. 1999 ----------------------------------------------------------------------------------------------------------------------------------- (Dollars in Thousands) ----------------------------------------------------------------------------------------------------------------------------------- Intersegment shipping sales $ (11,556) $ (11,378) $ (11,670) Intersegment shipping costs (11,556) (11,378) (11,670) Gross profit - - - Corporate general, selling and administrative expenses 8,020 8,010 10,278 10 0.1% (2,268) (22.1%) Nanocomposite business development expenses 4,629 6,030 5,134 (1,401) (23.2%) 896 17.5% Business realignment and other charges - 2,357 - (2,357) (100.0%) 2,357 100.0% Operating loss (12,649) (16,397) (15,412) 3,748 (22.9%) (985) 6.4% -----------------------------------------------------------------------------------------------------------------------------------
Intersegment shipping revenues and costs were related to services provided by the transportation segment for certain domestic minerals and environmental segment businesses. The services were provided at arms length rates, and billed by the transportation segment to the minerals and environmental segments, who in turn billed their customers. The intersegment shipping sales and costs in the table above reflect the elimination of these intersegment transactions. Corporate costs include management information systems, human resources, investor relations, corporate communications and finance. Additionally, research and operating costs related to the development of the nanocomposite business are included in corporate. 20 Corporate administrative expenses were flat in 2001 compared with 2000. Lower incentive compensation and reduced personnel costs reduced corporate administrative expenses from 1999 to 2000. The nanocomposite business was restructured in the second quarter of 2001, which resulted lower research costs in 2001 compared with 2000. Higher product development costs led to an increase in the nanocomposite business expenses in 2000 compared to 1999. Management continues to believe its nanocomposite technology has strong commercial potential. During 2000, the Company engaged an investment banking firm to help management evaluate various strategic options to enhance shareholder value. The Company engaged in significant discussions involving the disposition of its business, including the sale of certain parts and the potential spin-off of the Nanocor business. In the process, the Company incurred approximately $2.4 million in professional fees. These expenses have been included as a component of business realignment expenses. INVESTMENT INCOME Investment income was earned in 2001 and 2000 as a result of the temporary investment of proceeds received on the sale of the absorbent polymers segment. In 2001, investment income dropped to $0.06 per diluted share compared with $0.20 per diluted share in 2000 as a result of lower average balance of invested funds. The Company paid approximately $130 million in the first quarter in 2001 for income taxes associated with the sale. The remaining invested funds were liquidated in the third quarter and used to pay down long-term debt. NET INTEREST EXPENSE Net expense was $2.2 million, $3.2 million and $3.4 million in 2001, 2000, and 1999, respectively. The decrease in 2001 from 2000 was due to lower average debt levels and interest rates. Lower average debt levels caused the reduction in interest expense 2000 in comparison to 1999. OTHER INCOME (EXPENSE) Other income in 2001 and 2000 of $0.2 million and $0.6 million, respectively, was primarily attributed to gains on the disposal of fixed assets. Foreign exchange transaction losses caused the $1.1 million of other expense in 1999. INCOME TAXES The effective income tax rate for 2001 was 32.1% compared with 28.3% in 2000 and a tax benefit rate of 31.2% in 1999. The rate increased in 2001 from 2000 primarily from lower tax benefits associated with export incentives and higher state income taxes. The tax benefit rate in 1999 was impacted by a nondeductible goodwill write-down. EARNINGS PER SHARE Diluted earnings per share was calculated using the weighted average number of shares of common stock, including common share equivalents, outstanding during the year. Stock options issued to key employees and directors are considered common share equivalents. As a result of the equity restructuring following the sale of the absorbent polymers segment, all outstanding unexercised options at June 30, 2000 were adjusted. The value of the options remained the same as before the payment of the partial liquidation dividend, however the number of options increased and the exercise prices were reduced. This resulted in a significantly greater number of common share equivalents during the second half of 2000 and throughout 2001. The weighted average number of shares of common stock and common stock equivalent shares outstanding was approximately 30.6 million in 2001, 30.0 million in 2000 and 27.2 million in 1999. 21 There were 28.2 million shares outstanding, excluding common share equivalents, at December 31, 2001 compared to 28.8 million at December 31, 2000. The 0.5 million share decrease was related to the exercise of stock options net of purchase of treasury shares. Diluted income (loss) from continuing operations was $.43, $.62 and ($.12) in 2001, 2000 and 1999, respectively. Special charges and investment income impacted the reported numbers. An analysis detailing the effects of these items on diluted earnings per share from continuing operations appears below:
----------------------------------------------------------------------------------------------------------- Year Ended December 31, ---------------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------------------- Business realignment and other charges $ - $ (0.05) $ (0.30) Investment income 0.06 0.20 - Income from operations excluding the above 0.37 0.47 0.18 ------------ ------------- ------------- Diluted income (loss) from continuing operations $ 0.43 $ 0.62 $ (0.12) -----------------------------------------------------------------------------------------------------------
In 2001, the Company sold its U.K. metalcasting business and closed its U.K. cat litter business. The operating results for these U.K. operations were reclassified to discontinued operations for all periods presented. Diluted income (loss) per share from discontinued operations for 2001 amounted to $0.01 per share, including $.04 from the gain on the sale of these businesses, compared to ($0.51) for 2000 and ($0.18) for 1999. The absorbent polymers segment was sold to BASF AG on June 1, 2000. The operating results for the absorbent polymers segment were reclassified to discontinued operations for all periods presented. Diluted income from the segment for 2000 amounted to $10.80 per share, including $10.56 from the gain on the sale of the segment, compared to $1.12 for 1999. The income from discontinued operations in 2000 was for the five months ended May 31, 2000 compared with a full year in 1999. An extraordinary loss of $.01 per share related to the early extinguishment of long-term debt was recorded in 2000. FORWARD LOOKING STATEMENTS Certain statements made from time to time by the Company, including statements in the Management's Discussion and Analysis of Financial Condition and Results of Operation section above, constitute "forward-looking statements" made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to the Company or its operations that are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions, and statements relating to anticipated growth, levels of capital expenditures, future dividends, expansion into global markets and the development of new products. Such forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The Company's actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors, including without limitation the following: COMPETITION Minerals. The minerals market is very competitive. We believe competition is essentially a matter of product quality, price, delivery, service and technical support. Several of our competitors in the U.S. market are larger and have substantially greater financial resources. If we fail to compete successfully based on these or other factors, we may lose customers or fail to recruit new customers and our business and future financial results could be materially and adversely affected. 22 RELIANCE ON METALCASTING AND CONSTRUCTION INDUSTRIES Approximately 52% of our minerals segment's sales and 30% of our environmental segment's sales in 2001 were to the metalcasting and construction markets, respectively. The metalcasting and construction markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for products by the metalcasting and construction markets may decline and our business or future financial results in the minerals and environmental segments may be adversely affected. REGULATORY AND LEGAL MATTERS Our operations are subject to various federal, state, local and foreign laws and regulations relating to the environment and to health and safety matters. Substantial penalties may be imposed if we violate certain of these laws and regulations even if the violation was inadvertent or unintentional. If these laws or regulations are changed or interpreted differently in the future, it may become difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions. If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected. The Company may be subject to adverse litigation results in addition to as future changes in laws and regulations that may negatively impact its operations and profits. RISKS OF INTERNATIONAL EXPANSION An important part of our business strategy is to expand internationally. We intend to seek acquisitions, joint ventures and strategic alliances globally. Currently, our business outside the United States represents approximately 17% of our consolidated sales. The approximate breakdown of the sales outside of the United States for 2001 was as follows: Europe 60%; Latin America (including Mexico) 3%; Asia 35%; and Africa along with the Middle East 2%. As we expand internationally, we will be subject to increased risks, which may include the following: . currency exchange or price control laws; . currency translation adjustments; . political and economic instability; . unexpected changes in regulatory requirements; . tariffs and other trade barriers; . longer accounts receivable collection cycles; and . adverse tax consequences. The above listed events could result in sudden, and potentially prolonged, changes in demand for the Company's products. Also, we may have difficulty enforcing agreements and collecting accounts receivable through a foreign country's legal system. At December 31, 2001, approximately 42% of the gross accounts receivable were due from customers outside of the United States and Canada. The breakdown of the overseas balance was as follows: Europe 56%; Latin America (including Mexico) 17%; Asia 26%; and Africa and the Middle East 1%. VOLATILITY OF STOCK PRICE The stock market has been extremely volatile in recent years. These broad market fluctuations may adversely affect the market price of our common stock. In addition, factors such as the following may have a significant effect on the market price of our common stock: 23 . fluctuations in our financial results; . our introduction of new services or products; . announcements of acquisitions, strategic alliances or joint ventures by us, our customers or our competitors; . changes in analysts' recommendations regarding our common stock; and . general economic conditions. There can be no assurance that the price of our common stock will increase in the future or be maintained at its recent levels. ACCOUNTING STANDARDS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133." ("SFAS 138"). These statements establish accounting and reporting standards that require every derivative instrument to be recorded on the consolidated balance sheet as either an asset or a liability at its fair value. SFAS 133, as amended, requires the transition adjustment resulting from adopting these statements to be reported as the cumulative effect of a change in accounting principle. Upon adoption, the Company recorded the fair value of its one outstanding derivative instrument (an interest rate swap agreement) in the consolidated balance sheet, and recognized a cumulative effect type loss of $0.2 million (net of income taxes of $0.1 million) in the consolidated statement of operations for 2001. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142") which supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. SFAS 142 also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. SFAS 142 stipulates that goodwill should no longer be amortized and instead should be subject to an annual impairment assessment. The provisions of SFAS 142 are required to be applied effective January 1, 2002. Management does not believe that the adoption of SFAS 142 will have a material effect on the consolidated financial statements. Additionally in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143") which addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the related asset retirement costs. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company is required to adopt SFAS No. 143 on January 1, 2003.. Management is currently evaluating the impact of the adoption of SFAS 143 on the Company's consolidated financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") which supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". While SFAS 144 retains many of the fundamental recognition and measurement provisions of SFAS 121, it changes the criteria required to be met to classify an asset as held for sale. SFAS 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", and among other things, broadens reporting for discontinued operations to include a component of an entity, rather than just a segment of a business. The Company adopted SFAS 144 on January 1, 2001, and applied its provisions in reporting discontinued operations in 2001. 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including those related to foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. EXCHANGE RATE SENSITIVITY The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the Euro, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company also has significant exposure to changes in exchange rates between the British pound and the Euro. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. As of December 31, 2001, the Company had no outstanding foreign currency contracts. INTEREST RATE SENSITIVITY The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instruments' actual cash flows are denominated in U.S. dollars (US), Chinese Renmimbi (RMB) and Thai baht (THB) as indicated in parentheses.
--------------------------------------------------------------------------------------------------------------------------- Expected Maturity Date ---------------------------------------------------------------------------------------------- Fair 2002 2003 2004 2005 2006 Thereafter Total Value --------------------------------------------------------------------------------------------------------------------------- (US$ equivalent in thousands) Long-term debt: Variable rate (US) - 7,000 - - - 5,000 12,000 12,000 Average interest rate - 4.6% - - - - - - Variable rate (RMB) 454 - - - - - 454 454 Average interest rate 6.2% - - - - - - - Variable rate (THB) 791 - - - - - 791 791 Average interest rate 5.2% - - - - - - - -------- -------- ------ ------ ------ ---------- ----------- ----------- 1,245 7,000 - - - 5,000 13,245 13,245 Debt to be refinanced (1,245) 1,245 - - - - - - -------- -------- ------ ------ ------ ---------- ----------- ----------- Total $ 0 $ 8,245 $ - $ - $ - $ 5,000 $ 13,245 $ 13,245 ======== ======== ====== ====== ====== ========== =========== =========== ---------------------------------------------------------------------------------------------------------------------------
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to exchange variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials are paid or received on these arrangements over the life of the agreements. At the end of 2001, there were not any interest rate swaps outstanding. At December 31, 2000, the Company had one interest rate swap outstanding, which was terminated in the second quarter of 2001, at a cost of $0.4 million. 25 The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments are carried at amounts that approximate fair value. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Index to Financial Statements and Financial Statement Schedule on Page F-1. Such Financial Statements and Schedule are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Below lists the names and ages of all directors and all positions each person holds with the Company or other organizations. BOARD OF DIRECTORS OF THE REGISTRANT Arthur Brown, 61 /(1, 2)/ Chairman, President and Chief Executive Officer of Hecla Mining Company, a miner and processor of silver, gold and industrial minerals. Director since 1990. Robert E. Driscoll, III, 63 /(1, 2)/ Retired Dean and Professor of Law, University of South Dakota. Director since 1985. John Hughes, 59 /(3, 4)/ Chairman of the Board of Directors since May 1998; Chief Executive Officer of the Company since 1985; a Director since 1984. Mr. Hughes retired as Chief Executive Officer in May 2000. Jay D. Proops, 60 /(2, 3, 4)/ Private investor and former Vice Chairman and co-founder of The Vigoro Corporation. Also a Director of Great Lakes Chemical Corporation. Director since 1995. C. Eugene Ray, 69 /(1, 2, 3, 4)/ Retired Executive Vice President - Finance of Signode Industries, Inc., a manufacturer of industrial strapping products. Director since 1981. 26 Clarence O. Redman, 59 /(2, 3)/ Secretary of AMCOL International Corporation. Counsel to the law firm of Lord, Bissell & Brook, the law firm that serves as Corporate Counsel to the Company. Previously, Mr. Redman was an individual and corporate partner of the law firm of Keck, Mahin & Cate as the sole shareholder and President of Clarence Owen Redman Ltd. Mr. Redman and his professional corporation also served as Chief Executive Officer of Keck, Mahin & Cate until September 1997. In December 1997, Keck, Mahin & Cate filed a voluntary petition in bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Director since 1989. Dale E. Stahl, 54 /(1, 2, 3, 4)/ President and Chief Operating Officer of Inland Paperboard and Packaging, Inc., a manufacturer of containerboard and corrugated boxes since June 2000; prior thereto, President and Chief Operating Officer of Gaylord Container Corporation, a manufacturer and distributor of brown paper and packaging products. Director since 1995. Lawrence E. Washow, 48 /(3)/ Chief Executive Officer of the Company since May 2000, President of the Company since May 1998; Chief Operating Officer of the Company since 1997; prior thereto, Senior Vice President of the Company since 1994 and President of Chemdal International Corporation until August 1997; a Director since 1998. Audrey L. Weaver, 47 /(2)/ Private investor. Director since 1997. Paul C. Weaver, 39 /(3, 4)/ Managing partner of Consumer Aptitudes, Inc., a marketing research firm. Director since 1995. -------------------------------------- /(1)/ Member of Audit Committee /(2)/ Member of Compensation Committee /(3)/ Member of Executive Committee /(4)/ Member of Nominating Committee Additional information regarding the directors of the Company is included under the captions "Information Concerning Nominees," "Information Concerning Continuing Members of the Board" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy statement to be dated on or before April 9, 2002, and is incorporated herein by reference. Information regarding executive officers of the Company is included under a separate caption in Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION Information regarding the above is included under the captions "Named Officers' Compensation"and "Stock Performance" in the Company's proxy statement to be dated on or before April 9, 2002, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding the above is included under the caption "Security Ownership" in the Company's proxy statement to be dated on or before April 9, 2002, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding the above is included under the captions "Certain Relationships and Transactions" in the Company's proxy statement to be dated on or before April 9, 2002, and is incorporated herein by reference. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K ----------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------- (a) 1. See Index to Financial Statements and Financial Statement Schedule on Page F-1. ---------------------------------------------------------------------------------------------------------------------- 2. See Financial Statements and Index to Financial Statement Schedule on Page F-1. ---------------------------------------------------------------------------------------------------------------------- Such Financial Statements and Schedule are incorporated herein by reference. ---------------------------------------------------------------------------------------------------------------------- 3. See Index to Exhibits immediately following the signature page. ----------------------------------------------------------------------------------------------------------------------------------- (b) None. ----------------------------------------------------------------------------------------------------------------------------------- (c) See Index to Exhibits immediately following the signature page. ----------------------------------------------------------------------------------------------------------------------------------- (d) See Index to Financial Statements and Financial Statement Schedule on Page F-1. -----------------------------------------------------------------------------------------------------------------------------------
ITEM 14(A) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
----------------------------------------------------------------------------------------------------------------------------------- Page ----------------------------------------------------------------------------------------------------------------------------------- (1) Financial Statements: ----------------------------------------------------------------------------------------------------------------------------------- Independent Auditors' Report F-2 ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Balance Sheets, December 31, 2001 and 2000 F-3 ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Operations, ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 2001, 2000 and 1999 F-4 ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Comprehensive Income, ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 2001, 2000 and 1999 F-5 ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Stockholders' Equity, ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 2001, 2000 and 1999 F-6 ----------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Cash Flows, ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 2001, 2000 and 1999 F-7 ----------------------------------------------------------------------------------------------------------------------------------- Notes to Consolidated Financial Statements F-8 ----------------------------------------------------------------------------------------------------------------------------------- (2) Financial Statement Schedule: ----------------------------------------------------------------------------------------------------------------------------------- Schedule II - Valuation and Qualifying Accounts F-28 -----------------------------------------------------------------------------------------------------------------------------------
All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required, or because the required information is not material. F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders AMCOL International Corporation: We have audited the consolidated financial statements of AMCOL International Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCOL International Corporation and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Chicago, Illinois March 1, 2002 F-2 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
----------------------------------------------------------------------------------------------------------------------------------- December 31, -------------------------- ASSETS 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Current assets: Cash $ 10,320 $ 8,201 Cash equivalents - 168,549 Accounts receivable: Trade, less allowance for doubtful accounts of $2,127 and $2,232 in 2001 and 2000, respectively 41,331 40,262 Other 2,310 2,673 Inventories 34,593 30,328 Prepaid expenses 4,419 6,146 Net current assets of discontinued operations 798 - Current deferred tax assets 4,286 3,821 Income taxes receivable 3,120 - ------------ ----------- Total current assets 101,177 259,980 ------------ ----------- Investment in and advances to joint ventures 13,219 12,672 ------------ ----------- Property, plant, equipment, and mineral rights and reserves: Land and mineral rights and reserves 9,293 9,606 Depreciable assets 181,120 170,900 ------------ ----------- 190,413 180,506 Less: accumulated depreciation 118,065 105,841 ------------ ----------- 72,348 74,665 ------------ ----------- Other assets: Goodwill and other intangible assets, less accumulated amortization of $314 and $219 403 466 Long-term prepayments and other assets 4,410 5,137 Net non-current assets of discontinued operations 311 6,932 Deferred tax assets 4,462 5,915 ------------ ----------- 9,586 18,450 ------------ ----------- $ 196,330 $ 365,767 ============ =========== -----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- December 31, --------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Current liabilities: Current maturities of long-term debt $ - $ 1,042 Accounts payable 9,239 9,866 Accrued income taxes - 135,913 Accrued liabilities 21,844 21,279 Net current liabilities of discontinued operations - 1,484 ------------ ------------ Total current liabilities 31,083 169,584 ------------ ------------ Long-term debt 13,245 51,334 ------------ ------------ Minority interests in subsidiaries 523 - Other liabilities 10,752 9,942 ------------ ------------ 11,275 9,942 ------------ ------------ Stockholders' equity: Common stock, par value $.01 per share. Authorized 100,000,000 shares, issued 32,015,771 shares in 2001 and 2000 320 320 Additional paid in capital 71,905 75,536 Retained earnings 91,018 79,336 Cumulative other comprehensive loss (2,688) (1,495) ------------ ------------ 160,555 153,697 Less: Treasury stock (3,759,382 and 3,234,467 shares in 2001 and 2000, respectively) 19,828 18,790 ------------ ------------ 140,727 134,907 ------------ ------------ $ 196,330 $ 365,767 ============ ============ -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-3 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Continuing Operations Net sales $ 275,288 $ 284,142 $ 296,118 Cost of sales 208,983 215,744 228,805 ------------ ----------- ----------- Gross profit 66,305 68,398 67,313 General, selling and administrative expenses 47,740 48,071 56,925 Business realignment and other charges - 2,357 11,575 ------------ ----------- ----------- Operating profit (loss) 18,565 17,970 (1,187) ------------ ----------- ----------- Other income (expense): Investment income 3,015 9,816 - Change in value of interest rate swap (401) - - Interest expense, net (2,196) (3,160) (3,440) Other, net 223 594 (1,069) ------------ ----------- ----------- 641 7,250 (4,509) ------------ ----------- ----------- Income (loss) before income taxes and equity in income of joint ventures 19,206 25,220 (5,696) Income tax expense (benefit) 6,155 7,155 (1,815) ------------ ----------- ----------- Income (loss) before equity in income of joint ventures 13,051 18,065 (3,881) Income from joint ventures 28 470 448 Minority interest in net loss of subsidiary 59 - - ------------ ----------- ----------- Income (loss) from continuing operations 13,138 18,535 (3,433) ------------ ----------- ----------- Discontinued Operations Income (loss) from operations (net of income taxes) (879) (8,185) 25,667 Gain on sale (net of income tax benefit of $6,000 in 2001 and expense of $208,964 in 2000) 1,154 316,330 - ------------ ----------- ----------- Income from discontinued operations 275 308,145 25,667 ------------ ----------- ----------- Extraordinary Loss on early extinguishment of debt (net of income tax benefit of $238) - (443) - ------------ ----------- ----------- Cummulative effect of change in accounting principle (net of taxes) (182) - - ------------ ----------- ----------- Net income $ 13,231 $ 326,237 $ 22,234 ============ =========== =========== -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. Continued... F-4 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Earnings per share Basic earnings (loss) per share: Continuing operations $ 0.47 $ 0.67 $ (0.13) ----------- ----------- ------------ Discontinued operations: Income (loss) from operations (0.03) (0.30) 0.96 Gain on sale 0.04 11.50 - ----------- ----------- ------------ 0.01 11.20 0.96 ----------- ----------- ------------ Extraordinary item - (0.02) - ----------- ----------- ------------ Cummulative effect of change in accounting principle (0.01) - - ----------- ----------- ------------ Net income $ 0.47 $ 11.85 $ 0.83 =========== =========== ============ Diluted earnings (loss) per share: Continuing operations $ 0.43 $ 0.62 $ (0.12) ----------- ----------- ------------ Discontinued operations: Income (loss) from operations (0.03) (0.27) 0.94 Gain on sale 0.04 10.56 - ----------- ----------- ------------ 0.01 10.29 0.94 ----------- ----------- ------------ Extraordinary item - (0.01) - ----------- ----------- ------------ Cummulative effect of change in accounting principle (0.01) - - ----------- ----------- ------------ Net income $ 0.43 $ 10.90 $ 0.82 =========== =========== ============
Consolidated Statements of Comprehensive Income (In thousands)
----------------------------------------------------------------------------------------------------------------------------------- Year Ended December 31, --------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Net income $ 13,231 $ 326,237 $ 22,234 Other comprehensive income (loss): Foreign currency translation adjustment (1,193) (4,034) (851) Reclassification adjustment for foreign currency losses included in net income - 5,146 - ----------- ----------- ------------ Comprehensive income $ 12,038 $ 327,349 $ 21,383 =========== =========== ============
See accompanying notes to consolidated financial statements. F-5 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Common Stock -------------------------- Cumulative Other Number Amount Additional Comprehensive of Paid-in Retained Income Shares/(1)/ Capital Earnings (Loss) --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1998 32,015,771 $ 320 $ 76,238 $ 127,262 $ (1,756) Net income - - - 22,234 - Cash dividends ($.27 per share) - - - (7,226) - Translation adjustment - - - - (851) Purchase of 226,600 treasury shares - - - - - Sales of 209,284 treasury shares pursuant to options - - 202 - - -------------- ---------- -------------- --------------- ------------------- Balance at December 31, 1999 32,015,771 320 76,440 142,270 (2,607) Net income - - - 326,237 - Partial liquidation distribution - - - (384,829) - Cash dividends ($.16 per share) - - - (4,342) - Translation adjustment - - - - (4,034) Reclassification adjustment for foreign currency losses included in net income - - - - 5,146 Sales of 1,929,248 treasury shares pursuant to options - - (904) - - -------------- ---------- -------------- --------------- ------------------- Balance at December 31, 2000 32,015,771 320 75,536 79,336 (1,495) Net income - - - 13,231 - Cash dividends ($0.055 per share) - - - (1,549) - Translation adjustment - - - - (1,193) Purchase of 1,788,800 treasury shares - - - - - Sales of 1,263,885 treasury shares pursuant to options - - (3,631) - - -------------- ---------- -------------- --------------- ------------------- Balance at December 31, 2001 32,015,771 $ 320 $ 71,905 $ 91,018 $ (2,688) ============== ========== ============== =============== ===================
Total Treasury Stock =============================== Balance at December 31, 1998 $ (29,150) $ 172,914 Net income - 22,234 Cash dividends ($.27 per share) - (7,226) Translation adjustment - (851) Purchase of 226,600 treasury shares (2,040) (2,040) Sales of 209,284 treasury shares pursuant to options 1,207 1,409 --------------- --------------- Balance at December 31, 1999 (29,983) 186,440 Net income - 326,237 Partial liquidation distribution - (384,829) Cash dividends ($.16 per share) - (4,342) Translation adjustment - (4,034) Reclassification adjustment for foreign currency losses included in net income - 5,146 Sales of 1,929,248 treasury shares pursuant to options 11,193 10,289 --------------- --------------- Balance at December 31, 2000 (18,790) 134,907 Net income - 13,231 Cash dividends ($0.055 per share) - (1,549) Translation adjustment - (1,193) Purchase of 1,788,800 treasury shares (7,776) (7,776) Sales of 1,263,885 treasury 6,738 3,107 shares pursuant to options --------------- --------------- Balance at December 31, 2001 $ (19,828) $ 140,727 =============== =============== -------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. F-6 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Year Ended December 31, ---------------------------------------- 2001 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Cash flow from operating activities: Income (loss) from continuing operations $ 13,138 $ 18,535 $ (3,433) Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities Depreciation, depletion, and amortization 17,427 17,000 19,093 Equity in income of joint ventures (28) (470) (448) Minority interest in net loss of subsidiary (59) - - Increase (decrease) in allowance for doubtful accounts (105) (183) 864 Increase (decrease) in deferred income taxes 988 124 (8,966) (Gain) loss on sale of depreciable assets (368) (212) 281 Write down of fixed and intangible assets - - 11,575 (Increase) decrease in current assets: Accounts receivable (601) 4,918 2,425 Income taxes receivable (120) - - Inventories (4,265) (3,303) 7,613 Prepaid expenses 1,727 245 (1,618) Increase (decrease) in current liabilities: Accounts payable (627) 527 132 Accrued income taxes (5,546) (1,745) (2,186) Accrued liabilities 564 127 (881) Increase in other noncurrent liabilities 809 2,252 1,115 ------------- ------------- -------------- Net cash provided by operating activities of continuing operations 22,934 37,815 25,566 ------------- ------------- -------------- Net cash provided by (used in) discontinued operations 1,614 (6,236) 14,386 ------------- ------------- -------------- Cash flow from investing activities: Proceeds from sale of depreciable assets 530 1,460 2,348 Net proceeds from sale of absorbent polymers segment before taxes - 654,581 - Tax payments related to the absorbent polymers segment sale (130,365) (75,587) - Acquisition of land, mineral reserves, and depreciable assets (14,730) (14,975) (15,796) Advances to joint ventures (547) (3,095) (4,117) (Increase) decrease in other assets (53) (4,524) 677 ------------- ------------- -------------- Net cash provided by (used in) investing activities (145,165) 557,860 (16,888) ------------- ------------- -------------- Cash flow from financing activities: Proceeds from issuance of debt - 7,604 263 Principal payments of debt (39,131) (46,804) (17,377) Proceeds from sales of treasury stock 3,107 10,289 1,409 Purchases of treasury stock (7,776) - (2,040) Partial liquidation distribution - (384,829) - Premium paid for early extinguishment of debt - (443) - Cummulative effect of change in accounting principle (182) - - Change in minority interest 608 - - Dividends paid (1,549) (4,342) (7,226) ------------- ------------- -------------- Net cash used in financing activities (44,923) (418,525) (24,971) ------------- ------------- -------------- Effect of foreign currency rate changes on cash (890) 2,325 (473) ------------- ------------- -------------- Net increase (decrease) in cash and cash equivalents (166,430) 173,239 (2,380) Cash and cash equivalents at beginning of year 176,750 3,511 5,891 ------------- ------------- -------------- Cash and cash equivalents at end of year $ 10,320 $ 176,750 $ 3,511 ============= ============= ============== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 2,540 $ 5,163 $ 4,906 ============= ============= ============== Income taxes $ 134,151 $ 88,762 $ 17,561 ============= ============= ============== -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. F-7 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Company Operations AMCOL International Corporation (the Company) operates in two principal areas of activity: minerals and environmental. The Company also operates a transportation business primarily for delivery of its own products. In 2001, the Company's revenues were derived 52% from minerals, 36% from environmental and 12% from transportation operations. The Company's sales in 2001 were approximately 83% domestic and 17% outside of the United States. Further descriptions of the Company's products, its principal markets and the relative significance of its operations are included in Note 3, "Business Segment and Geographic Area Information." During 2001, the Company disposed of its U.K. metalcasting business and completed the sale and closure of its U.K. cat litter operations. During 2000, the Company sold its absorbent polymers business. The Company has reclassified the net assets and results of these operations as discontinued operations. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. All subsidiaries greater than 50% owned by the Company, are consolidated. The Company's ownership interest in the Mexican, Indian, Egyptian and Chinese ventures range between 20% and 50%. Accordingly, these investments are accounted for using the equity method. The Company's ownership interest in the Japanese investment is less than 20% and is recorded at cost. All material intercompany balances and transactions between wholly owned subsidiaries, including profits on inventories, have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results likely differ from those estimates, but management believes that such differences are immaterial. Translation of Foreign Currencies The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rate of exchange at the balance sheet date. The statements of operations are translated at the weighted average monthly rate. Foreign exchange translation adjustments are accumulated as a separate component of stockholders' equity, while foreign currency transaction gains or losses are included in income. Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. F-8 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Inventories Inventories are valued at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) or moving average methods. Exploration costs are expensed as incurred. Costs incurred in removing overburden and mining bentonite are capitalized as advance mining costs until the bentonite from such mining area is transported to the plant site, at which point the costs are included in crude bentonite stockpile inventory. Property, Plant, Equipment, and Mineral Rights and Reserves Property, plant, equipment, and mineral rights and reserves are carried at cost. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field equipment, are depreciated on the units-of-production method. Mineral rights and reserves are depleted using the units-of-production method. Goodwill and Other Intangible Assets Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Goodwill is amortized on the straight-line method over periods of five to 10 years. Other intangibles, including trademarks and noncompete agreements, are amortized on the straight-line method over the expected periods to be benefited, which extend up to 10 years. Impairment of Long-Lived Assets Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value as estimated by discounted cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs of disposal. Income Taxes The Company and its U.S. subsidiaries file a consolidated tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Revenue Recognition Product revenue is recognized when products are shipped to customers. Allowances for discounts, rebates, and estimated returns are recorded at the time of sale. F-9 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Shipping Revenues and Costs The Company reports shipping and handling costs that are passed on to customers as sales revenue and cost of sales in the consolidated statements of operations. Research and Development Research and development costs are included in general, selling and administrative expenses and amounted to approximately $5,039, $4,675 and $3,496 for the years ended December 31, 2001, 2000 and 1999, respectively. Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average common shares outstanding after consideration of the dilutive effect of stock options. A reconciliation between the number of shares used to compute basic and diluted earnings per share follows:
------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------- Weighted average of common shares outstanding for the year 28,193,234 27,523,157 26,772,569 Dilutive impact of stock options 2,412,826 2,433,533 426,694 ------------- ------------- ------------- Weighted average of common and common equivalent shares for the year 30,606,060 29,956,690 27,199,263 ============= ============= ============= Common shares outstanding at December 31 28,256,389 28,781,304 26,852,056 ============= ============= ============= -------------------------------------------------------------------------------------------------------------------
Stock Option Plans The Company has adopted the disclosure only provisions of Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation," but applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its fixed plan stock options. As such, compensation expense is recorded on the grant date only if the market price of the underlying stock exceeds the exercise price. Derivative Instruments and Hedging Activities The Company occasionally uses derivative financial instruments (principally interest rate swaps or options) to manage its exposure to changes in interest rates. The Company does not use derivative instruments for trading or other speculative purposes. The Company had no derivative financial instruments outstanding at December 31, 2001. Following the adoption of SFAS 133 on January 1, 2001, all derivatives are recognized as assets or liabilities on the consolidated balance sheet at their fair value. Changes in the fair value of derivative instruments are reported in earnings or in other comprehensive income depending on the use of the derivative and whether it qualifies for hedge accounting. Gains and losses resulting from changes in the fair value of a derivative that is designated as a hedge and is highly effective in achieving offsetting changes in the fair value or cash flows of the hedged item are included in operations in the same period as the hedged item affects earnings. Gains and losses resulting from changes in the fair value of a derivative that does not qualify for hedge accounting are included in operations in the period they occur. F-10 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge and other transactions involving derivative instruments. The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues hedge accounting prospectively. For the year ended December 31, 2000, prior to the adoption of SFAS No, 133, the Company had entered into an interest rate swap agreement to reduce its exposure to market risks from changing interest rates. Prior to the adoption of SFAS No, 133, the differential to be paid or received under the terms of the interest rate swap was accrued and recognized in interest expense. Reclassifications Certain items in the 2000 and 1999 consolidated financial statements have been reclassified to conform with the consolidated financial statement presentation for 2001. New Accounting Standards adopted Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as amended by SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of SFAS 133." ("SFAS 138"). These statements establish accounting and reporting standards that require every derivative instrument to be recorded on the consolidated balance sheet as either an asset or a liability at its fair value. SFAS 133, as amended, requires the transition adjustment resulting from adopting these statements to be reported as the cumulative effect of a change in accounting principle. Upon adoption, the Company recorded the fair value of its one outstanding derivative instrument (an interest rate swap agreement) in the consolidated balance sheet, and recognized a cumulative effect type loss of $0.2 million (net of income taxes of $0.1 million) in the consolidated statement of operations for 2001. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144") which supersedes SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". While SFAS 144 retains many of the fundamental recognition and measurement provisions of SFAS 121, it changes the criteria required to be met to classify an asset as held for sale. SFAS 144 also supersedes the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", and among other things, broadens reporting for discontinued operations to include a component of an entity, rather than just a segment of a business. The Company adopted SFAS 144 on January 1, 2001, and applied its provisions in reporting discontinued operations in 2001. F-11 AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (2) DISCONTINUED OPERATIONS In 2001, the Company sold its U.K. metalcasting business to a group comprised in part of former management of the business. The Company did not receive any proceeds from the sale. Included in the sale were certain machinery and equipment. The acquirer entered into a license agreement for the right to use certain trademarks for a period of ten years, and will lease certain land and buildings from the Company. The U.K. metalcasting business was a component entity of the Company's minerals segment. The Company recognized a gain related to the disposal of discontinued operations of $1,154 (including a tax benefit of $6,000) in 2001. The tax benefit recognized in 2001 included a reduction of previously recognized tax reserves. In 2000 the Company announced its intention to close its U.K. cat litter business. Certain assets used in the business were sold to various outside parties for cash proceeds of $720. The closure was completed in 2001. The U.K. cat litter business was a component of the Company's minerals segment. In 1998, several claims were filed in Chester, England against certain of the Company's subsidiaries. The claims alleged property damage, nuisance and personal injury based on the accidental release of dust from Volclay Limited's facility in Wallasey, England. The claims were made on behalf of up to 1,600 persons who, at some point during the period since 1965, resided in the vicinity of the Wallasey, England facility. During the second half of 2000, the Company was informed that its insurance carrier had denied coverage related to this matter and cancelled the applicable insurance policy. The Company accrued the estimated settlement and related legal fees of $6,500 during the fourth quarter of 2000. In 2001, the Company settled the dust litigation for a total cost that approximated the reserves previously recorded. In 2000, the Company sold its absorbent polymers segment to BASF AG. The transaction closed on June 1, 2000, at which time the Company received gross proceeds of approximately $656,500. The sale resulted in a pretax gain of approximately $525,300 ($316,300 after income taxes of approximately $209,000), net of costs incurred in connection with the sale. The net proceeds from the sale transaction were used to fund a partial liquidation distribution to the Company's shareholders on June 30, 2000. The consolidated financial statements have been reclassified to report separately the net assets and operating results of the U.K. metalcasting and cat litter business and the absorbent polymers segment for all periods presented. Summary operating results for 2001, 2000 and 1999 were as follows:
------------------------------------------------------------------------------------------------- U.K. metalcasting and cat litter businesses 2001 2000 1999 ------------------------------------------------------------------------------------------------- Net sales $ 8,760 $ 18,550 $ 22,957 Operating loss (1,174) (14,490) (5,306) Income tax expense (benefit) (384) 378 (212) Net loss (879) (15,232) (4,882) -------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------- Absorbent polymers segment 2001 2000* 1999 ------------------------------------------------------------------------------------------------- Net sales $ - $ 86,000 $ 253,629 Operating profit - 12,436 51,850 Income tax expense - 4,639 15,571 Net income - 7,047 30,549 -------------------------------------------------------------------------------------------------
*The 2000 information is for five months. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) A portion of the Company's interest expense has been allocated to discontinued operations based upon the debt balances attributable to these operations. Net interest expense allocated to discontinued operations was $199, $1,261, and $2,956 in 2001, 2000, and 1999, respectively. (3) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION The Company operates in two principal business segments: minerals and environmental. The Company also operates a transportation business. The minerals segment mines, processes and distributes clays and products with similar applications to various industrial and consumer markets. The environmental segment processes and distributes clays and products with similar applications for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications. The transportation segment includes a long-haul trucking business and a freight brokerage business, which provide services to both the Company's plants and outside customers. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. Intersegment sales are insignificant, other than intersegment shipping, which is disclosed in the following table. The Company measures segment profit based on operating profit. Operating profit is defined as sales less cost of sales and general, selling and administrative expenses related to a segment's operations. The costs deducted to arrive at operating profit do not include interest or income taxes. Segment assets are those assets used in the Company's operations in that segment. Corporate assets include cash and cash equivalents, corporate leasehold improvements, the nanocomposite plant investment and other miscellaneous equipment. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (3) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED) The following summaries set forth certain financial information by business segment and geographic area as of and for the years ended December 31, 2001, 2000 and 1999.
------------------------------------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------------- Business Segment: Revenues: Minerals $ 149,945 $ 163,474 $ 158,258 Environmental 103,766 98,010 114,898 Transportation 33,133 34,036 34,632 Intersegment shipping (11,556) (11,378) (11,670) ---------------- ---------------- ---------------- Total $ 275,288 $ 284,142 $ 296,118 ================ ================ ================ Operating profit (loss): Minerals $ 14,697 $ 21,296 $ 20,180 Environmental 15,154 11,594 (7,586) Transportation 1,363 1,477 1,631 Corporate (12,649) (16,397) (15,412) ---------------- ---------------- ---------------- Total $ 18,565 $ 17,970 $ (1,187) ================ ================ ================ Assets: Minerals $ 106,391 $ 109,681 $ 100,540 Environmental 65,216 57,691 60,722 Transportation 1,282 1,791 1,362 Corporate 22,332 200,516 20,331 Discontinued operations 1,109 (3,912) 136,734 ---------------- ---------------- ---------------- Total $ 196,330 $ 365,767 $ 319,689 ================ ================ ================ Depreciation, depletion and mortization: Minerals $ 9,984 $ 10,046 $ 11,029 Environmental 4,820 4,153 5,605 Transportation 37 45 64 Corporate 2,586 2,756 2,395 ---------------- ---------------- ---------------- Total $ 17,427 $ 17,000 $ 19,093 ================ ================ ================ Capital expenditures: Minerals $ 8,431 $ 7,935 $ 6,857 Environmental 5,691 5,014 6,240 Transportation 41 56 49 Corporate 567 1,970 2,650 ---------------- ---------------- ---------------- Total $ 14,730 $ 14,975 $ 15,796 ================ ================ ================ Research and development expenses: Minerals $ 1,677 $ 1,234 $ 814 Environmental 1,777 1,453 1,147 Corporate 1,585 1,988 1,535 ---------------- ---------------- ---------------- Total $ 5,039 $ 4,675 $ 3,496 ================ ================ ================
Continued.. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-14 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (3) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
-------------------------------------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------------------------------------- Geographic area: Sales to unaffiliated customers shipped from: North America $ 237,767 $ 247,539 $ 248,583 Europe 27,435 25,160 36,897 Asia 8,116 8,746 7,887 Australia 1,970 2,697 2,751 ---------------- ---------------- ---------------- Total $ 275,288 $ 284,142 $ 296,118 ================ ================ ================ Operating profit (loss) from: North America $ 13,598 $ 16,029 $ 133 Europe 4,482 658 (1,310) Asia 199 917 (402) Australia 286 366 392 ---------------- ---------------- ---------------- Total $ 18,565 $ 17,970 $ (1,187) ================ ================ ================ Identifiable assets in: North America $ 149,370 $ 333,062 $ 144,195 Europe 28,651 22,006 23,155 Asia 15,507 12,211 13,025 Australia 1,693 2,400 2,580 Discontinued operations 1,109 (3,912) 136,734 ---------------- ---------------- ---------------- Total $ 196,330 $ 365,767 $ 319,689 ================ ================ ================ --------------------------------------------------------------------------------------------------------------
(4) INVENTORIES Inventories at December 31 consisted of:
-------------------------------------------------------------------------------------------------------------- 2001 2000 -------------------------------------------------------------------------------------------------------------- Advance mining $ 1,872 $ 1,287 Crude stockpile inventories 11,524 11,898 In-process inventories 11,498 9,867 Other raw material, container, and supplies inventories 9,699 7,276 -------------- ---------------- $ 34,593 $ 30,328 ============== ================ --------------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-15 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (5) PROPERTY, PLANT, EQUIPMENT, AND MINERAL RIGHTS AND RESERVES Property, plant, equipment and mineral rights and reserves consisted of the following:
--------------------------------------------------------------------------------------------------------------------------------- December 31, Depreciation/ ----------------------------------- Amortization 2001 2000 Annual Rates --------------------------------------------------------------------------------------------------------------------------------- Mineral rights and reserves $ 4,970 $ 5,739 Other land 4,323 3,867 Buildings and improvements 40,995 36,496 4.9% to 25.0% Machinery and equipment 140,124 134,404 10.0% to 50.0% ---------------- ---------------- $ 190,412 $ 180,506 ================ ================ ---------------------------------------------------------------------------------------------------------------------------------
Depreciation and depletion were charged to income as follows:
------------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------------- Depreciation expense $ 16,247 $ 16,256 $ 15,633 Depletion expense 1,085 610 863 -------------- -------------- -------------- $ 17,332 $ 16,866 $ 16,496 ============== ============== ============== -------------------------------------------------------------------------------------------------------
(6) INCOME TAXES Total income tax expense (benefit) for the years ended December 31, 2001, 2000 and 1999 was allocated as follows:
------------------------------------------------------------------------------------------------------- 2001 2000 1999 ======================================================================================================== Income from continuing operations $ 6,155 $ 7,155 $ (1,815) Discontinued operations (6,294) 213,980 15,836 Extraordinary item (113) (238) - -------------- -------------- -------------- $ (252) $ 220,897 $ 14,021 ============== ============== ============== -------------------------------------------------------------------------------------------------------
Domestic and foreign components of income (loss) from continuing operations before income taxes and equity in income of joint ventures are shown below:
------------------------------------------------------------------------------------------------------- 2001 2000 1999 -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes and equity in income of joint ventures Domestic $ 14,377 $ 23,032 $ (2,675) Foreign 4,829 2,188 (3,021) -------------- -------------- -------------- $ 19,206 $ 25,220 $ (5,696) ============== ============== ============== -------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-16 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (6) INCOME TAXES (CONTINUED) The following analysis reconciles the statutory Federal income tax rate to the effective tax rates related to income from continuing operations before income taxes and equity in income of joint ventures:
------------------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------------------- Provision (benefit) for income taxes: Federal: Current $ 2,379 $ 4,622 $ 3,733 Deferred 722 512 (7,208) State: Current 697 712 948 Deferred 72 51 (721) Foreign: Current 2,091 1,697 1,461 Deferred 194 (439) (28) ----------- ----------- ------------- $ 6,155 $ 7,155 $ (1,815) =========== =========== ============= -------------------------------------------------------------------------------------------------
The Company's federal income tax returns have been audited through 1998. The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 31, 2001 and 2000 were as follows:
------------------------------------------------------------------------------------------------------- 2001 2000 ------------------------------------------------------------------------------------------------------- Deferred tax assets attributable to: Accounts receivable, due to allowance for doubtful accounts $ 576 $ 633 Inventories 973 527 Accrued pension liability 2,710 1,973 Capital losses carried forward 546 546 Book amortization in excess of tax allowance 2,046 3,925 Other 4,818 4,509 ------------- ------------- Total deferred tax assets 11,669 12,113 Deferred tax liabilities attributable to: Plant and equipment, due to differences in depreciation (865) (669) Land and mineral reserves, due to differences in depletion (2,056) (1,708) ------------- ------------- Total deferred tax liabilities (2,921) (2,377) ------------- ------------- Net deferred tax assets $ 8,748 $ 9,736 ============= ============= -------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-17 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (6) INCOME TAXES (CONTINUED) The following analysis reconciles the statutory Federal income tax rate to the effective tax rates related to income from continuing operations before income taxes and equity in income of joint ventures:
------------------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 ----------------------------------------------------------------------------- Percent Percent Percent of Pretax of Pretax of Pretax Amount Income Amount Income Amount Income ------------------------------------------------------------------------------------------------------------------------------ Provision (benefit) for income taxes at U.S. statutory rates $ 6,722 35.0% $ 8,827 35.0% $ (1,994) (35.0%) Increase (decrease) in taxes resulting from: Percentage depletion (875) (4.6%) (1,190) (4.7%) (875) (15.4%) State taxes 453 2.4% 463 1.8% 616 10.8% Export incentives (155) (0.8%) (632) (2.5%) (518) (9.1%) Nondeductible goodwill write-down - 0.0% - 0.0% 935 16.4% Other 10 0.1% (313) (1.2%) 21 0.4% ----------- ----------- ---------- ---------- ----------- ---------- $ 6,155 32.1% $ 7,155 28.4% $ (1,815) (31.9%) =========== =========== ========== ========== =========== ========== ------------------------------------------------------------------------------------------------------------------------------
(7) LONG-TERM DEBT Long-term debt consisted of the following:
----------------------------------------------------------------------------------------------------- December 31, ------------------------------- 2001 2000 ----------------------------------------------------------------------------------------------------- Short-term debt supported by revolving credit agreement $ 7,000 $ 42,000 Industrial revenue bond 5,000 5,000 Other notes payable 1,245 5,376 ------------ ------------- 13,245 52,376 Less: current portion - 1,042 ------------ ------------- $ 13,245 $ 51,334 ============ ============= -----------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-18 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (7) LONG-TERM DEBT (CONTINUED) The Company has a committed $125,000 revolving credit agreement, which matures October 31, 2003, with an option to extend for three additional one-year periods. As of December 31, 2001, there was $118,000 in borrowing capacity available under the line of credit. The revolving credit agreement is a multi-currency arrangement, which allows the Company to borrow at an adjusted LIBOR rate plus .25% to .75%, depending upon debt to capitalization ratios and the amount of the credit line used. The interest rate at December 31, 2001 was 2.18%. During 2000, the Company borrowed $5,000 using an industrial revenue bond to finance the construction of a plant in Butler, Georgia. The note, which matures in 2015, has a variable interest rate and is secured by the plant assets. At December 31, 2001, the interest rate was 1.70%. Maturities of long-term debt outstanding at December 31, 2001, were as follows:
----------------------------------------------------------------------------------------------------------------------- 2002 2003 2004 2005 2006 Thereafter ----------------------------------------------------------------------------------------------------------------------- Short-term debt supported by revolving credit agreement $ - $ 7,000 $ - $ - $ - $ - Industrial revenue bond and other notes payable - 1,245 - - - 5,000 ----------- ------------ ----------- ------------ ------------ ------------ $ - $ 8,245 $ - $ - $ - $ 5,000 =========== ============ =========== ============ ============ ============ -----------------------------------------------------------------------------------------------------------------------
The estimated fair value of the above notes at December 31, 2001, was approximately equal to their carrying amounts based on discounting future cash payments using current market interest rates for loans with similar terms and maturities. All loan agreements include covenants that require the maintenance of specific minimum amounts of working capital, tangible net worth and various financial ratios, and limit additional borrowings and guarantees. The Company was in compliance with these financial covenants at December 31, 2001. The Company is not required to maintain compensating balances. During 2000, the Company renegotiated its debt covenants to reflect the sale of the absorbent polymers segment. As a result of this transaction, the payment of $25,000 in term notes was accelerated as a part of the transaction resulting in an extraordinary loss from the early extinguishment of debt amounting to $443, net of income taxes. (8) MARKET RISKS AND FINANCIAL INSTRUMENTS As a multinational corporation that manufactures and markets products in countries throughout the world, the Company is subject to certain market risks, including those related to foreign currency, interest rates and government actions. The Company uses a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. The Company uses derivative financial instruments only for risk management and does not use them for trading or speculative purposes. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-19 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (8) MARKET RISKS AND FINANCIAL INSTRUMENTS (CONTINUED) Exchange Rate Sensitivity The Company is exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. The Company's primary exposures are to changes in exchange rates for the U.S. dollar versus the euro, the British pound, the Canadian dollar, the Australian dollar, the Mexican peso, the Thai baht and the Korean won. The Company also has significant exposure to changes in exchange rates between the British pound and the Euro. The Company's various currency exposures often offset each other, providing a natural hedge against currency risk. Periodically, specific foreign currency transactions (e.g. inventory purchases, royalty payments, etc.) are hedged with forward contracts to reduce the foreign currency risk. As of December 31, 2001, the Company had no outstanding foreign currency contracts. Interest Rate Sensitivity The following table provides information about the Company's financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. The instruments' actual cash flows are denominated in U.S. dollars (US), Chinese renminbi (RMB) and Thai baht (THB) as indicated in parentheses.
--------------------------------------------------------------------------------------------------------------------------- Expected Maturity Date -------------------------------------------------------------------------------------------- Fair 2002 2003 2004 2005 2006 Thereafter Total Value --------------------------------------------------------------------------------------------------------------------------- (US$ equivalent in thousands) Long-term debt: Variable rate (US) - 7,000 - - - 5,000 12,000 12,000 Average interest rate - 4.6% - - - - - - Variable rate (RMB) 454 - - - - - 454 454 Average interest rate 6.2% - - - - - - - Variable rate (THB) 791 - - - - - 791 791 Average interest rate 5.2% - - - - - - - ---------- --------- --------- --------- --------- ----------- ----------- --------- 1,245 7,000 - - - 5,000 13,245 13,245 Debt to be refinanced (1,245) 1,245 - - - - - - ---------- --------- --------- --------- --------- ----------- ----------- --------- Total $ - $ 8,245 $ - $ - $ - $ 5,000 $ 13,245 $ 13,245 ========== ========= ========= ========= ========= =========== =========== ========= ---------------------------------------------------------------------------------------------------------------------------
The Company periodically uses interest rate swaps to manage interest rate risk on debt securities. These instruments allow the Company to change variable rate debt into fixed rate or fixed rate debt into variable rate. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-20 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (8) MARKET RISKS AND FINANCIAL INSTRUMENTS (CONTINUED) The Company is exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. The credit risk associated with cash equivalents and short-term investments is mitigated by the Company's policy of investing in securities with high credit ratings and investing through major financial institutions with high credit ratings. The Company provides credit to customers in the ordinary course of business and performs ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base. The Company currently believes its allowance for doubtful accounts is sufficient to cover customer credit risks. The Company's accounts receivable financial instruments are carried at amounts that approximate fair value. (9) LEASES The Company has several noncancelable leases for railroad cars, trailers, computer software, office equipment, certain automobiles, and office and plant facilities. Total rent expense under operating lease agreements was approximately $3,672, $2,928 and $3,362 in 2001, 2000 and 1999, respectively. Additionally, the Company has two domestic facilities that are being subleased. The following is a schedule of future minimum lease payments for operating leases (with initial terms in excess of one year) and related sublease income as of December 31, 2001:
---------------------------------------------------------------------------------------- Minimum Lease Payments Sublease -------------------------- Rental Domestic Foreign Total Income ---------------------------------------------------------------------------------------- Year ending December 31: 2002 $ 2,739 $ 49 $ 2,788 $ (679) 2003 1,964 37 2,001 (502) 2004 1,638 26 1,664 (289) 2005 1,517 11 1,528 (298) 2006 1,412 10 1,422 (306) Thereafter 2,231 374 2,605 (503) -------------- -------- --------- --------- Total minimum lease payments (income) $ 11,501 $ 507 $ 12,008 $ (2,577) ============== ======== ========= ========= ----------------------------------------------------------------------------------------
(10) EMPLOYEE BENEFIT PLANS The Company has noncontributory pension plans covering substantially all of its domestic employees. The benefits are based upon years of service and qualifying compensation. The Company's funding policy is to contribute annually the maximum amount, calculated using the actuarially determined entry age normal method, that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-21 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (10) EMPLOYEE BENEFIT PLANS (CONTINUED) The following tables set forth pension obligations included in the Company's balance sheet at December 31, 2001 and 2000: -------------------------------------------------------------------------------- Pension Benefits ----------------------- 2001 2000 -------------------------------------------------------------------------------- Change in benefit obligations: Beginning benefit obligation $ 21,215 $ 24,617 Service cost 1,053 1,311 Interest cost 1,556 1,593 Effect of curtailment - (1,640) Effect of special termination benefits - 400 Effect of plan amendments 43 - Actuarial (gain) loss 156 (3,130) Benefits paid (1,049) (1,936) ---------- ----------- Ending benefit obligation $ 22,974 $ 21,215 ========== =========== Change in plan assets: Beginning fair value $ 24,573 $ 21,773 Actual return (3,355) 3,819 Company contribution - 917 Benefits paid (1,049) (1,936) ---------- ----------- Ending fair value $ 20,169 $ 24,573 ========== =========== Funded status of the plan $ (2,805) $ 3,358 Unrecognized actuarial and investment gains, net (888) (6,838) Prior service cost 471 457 Transition asset (498) (635) ---------- ----------- Accrued pension cost liability $ (3,720) $ (3,658) ========== =========== -------------------------------------------------------------------------------- Pension cost was comprised of:
------------------------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 1,053 $ 1,311 $ 1,708 Interest cost on accumulated benefit obligation 1,556 1,593 1,581 Expected return on plan assets (2,170) (1,994) (1,647) Net amortization and deferral (377) (218) (101) ------- ------- ------- Net periodic pension cost $ 62 $ 692 $ 1,541 Curtailment gain - (1,104) - ------- ------- ------- Net periodic pension cost (income) after curtailment $ 62 $ (412) $ 1,541 ======= ======= ======= -------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-22 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (10) EMPLOYEE BENEFIT PLANS (CONTINUED) The curtailment in 2000 was related to the sale of the absorbent polymers segment. All of the domestic absorbent polymers' employees were given full vesting and paid their accrued pension benefit. The valuations of the Company's pension benefit plans were performed as of October 1, 2001 and 2000. The plan assets are invested in common stocks, corporate bonds and notes, and guaranteed income contracts purchased from insurance companies. The key actuarial assumptions used to measure benefit obligations in the Company's pension plans were as follows: the weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% in 2001 and 7.50% in 2000; the rate of increase in future compensation levels was 5.75% in both years; and the expected long-term rate of return on plan assets was 9.0% for both years. In addition to the qualified plans outlined above, the Company sponsors a supplementary pension plan that provides benefits in excess of qualified plan limitations for certain employees. The unfunded, accrued liability for this plan was $1,741 and $1,467 at December 31, 2001 and 2000, respectively. The Company also has a savings plan for its U.S. personnel. The Company makes annual contributions in an amount equal to an employee's contributions up to a maximum of 4% of the employee's annual earnings. Company contributions are made using Company stock purchased on the open market. Company contributions under the savings plan were $1,223 in 2001, $1,349 in 2000 and $1,361 in 1999. The Company also has a deferred compensation plan and a 401(k) restoration plan for its executives. The foreign pension plans, which are not subject to ERISA, are funded using individual annuity contracts and, therefore, are not included in the information reflected above. (11) STOCK OPTION PLANS The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.123 (FAS 123), "Accounting for Stock-Based Compensation," but applies the intrinsic value-based method in accordance with Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Because the exercise price of each option granted equals the market price of the Company's common stock at the date of grant, no compensation cost has been recognized for the Company's stock option plans. Had compensation cost for the Company's stock option plans been determined using the fair value method of accounting described in FAS 123, the Company's net income would have been changed to the pro forma amounts indicated below: ------------------------------------------------------------------------ 2001 2000 1999 ------------------------------------------------------------------------ Net income: As reported $ 13,231 $ 326,237 $ 22,234 Pro forma $ 12,579 $ 325,557 $ 21,188 Basic earnings per share: As reported $ 0.47 $ 11.85 $ 0.83 Pro forma $ 0.45 $ 11.83 $ 0.79 Diluted earnings per share: As reported $ 0.43 $ 10.90 $ 0.82 Pro forma $ 0.41 $ 10.87 $ 0.78 ------------------------------------------------------------------------ AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-23 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (11) STOCK OPTION PLANS (CONTINUED) For purposes of calculating the compensation cost consistent with FAS 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2001, 2000 and 1999: ------------------------------------------------------------------- 2001 2000 1999 ------------------------------------------------------------------- Risk-free interest rate 5.1% 6.4% 4.9% Expected life of option 6 yrs. 7 yrs. 6 yrs. Expected dividend yield of stock 1.1% 1.0% 2.6% Expected volatility of stock 52% 50% 45% ------------------------------------------------------------------- In connection with the sale of the Company's absorbent polymers business to BASF AG, and the payment of a partial liquidation distribution to the Company's shareholders (See Note 2, "Discontinued Operations"), the number of shares underlying outstanding options was increased and the option price per share was reduced in order to reflect the effects of the Company's equity restructuring on outstanding option awards. As a result, immediately following the equity restructuring, the aggregate intrinsic value of each option equaled the aggregate intrinsic value before the equity restructuring. Further, vesting provisions and the option period of each original grant remained the same. These adjustments to the number of shares and the option price per share were made effective June 30, 2000, and the tables which follow separately display option activity before and after the equity restructuring. The 1983, 1987 and 1993 Plans The Company has reserved shares of its common stock for issuance of incentive and nonqualified stock options to its directors, officers and key employees in its 1983 Incentive Stock Option Plan, 1993 Stock Plan and 1987 Nonqualified Stock Option Plan. Options awarded under these plans, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value of the underlying common stock at the time of grant. Options awarded under these plans generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Compensation Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee, or a change in control of the Company. These plans are expired as of December 31, 2000, though options that were granted prior to expiration of the plans continue to be valid until the individual option grants expire. Changes in options outstanding are summarized as follows:
----------------------------------------------------------------------------------------------------------------------- December 31, 2001 December 31, 2000 December 31, 1999 --------------------------------------------------------------------------------- Weighted Weighted Weighted Expired Stock Option Plans Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------------------------------------------------------------------------------------------------------- Options outstanding at January 1 3,680,717 $ 1.94 1,478,256 $ 9.91 1,722,305 $ 9.48 Adjustment due to equity restructuring - - 4,100,584 - - - Exercised (1,107,934) 1.74 (1,835,392) 3.88 (182,424) 5.19 Cancelled (41,746) 1.78 (62,731) 5.81 (61,625) 11.71 ------------ ------------- ------------ Options outstanding at December 31 2,531,037 2.03 3,680,717 1.94 1,478,256 9.91 ============ ============= ============ Options exercisable at December 31 1,981,388 2,558,277 974,832 ============ ============= ============ Shares available for future grant at December 31 - - - ============ ============= ============ -----------------------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-24 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (11) STOCK OPTION PLANS (CONTINUED) 1998 Long-Term Incentive Plan The Company reserved 2,900,000 shares of its common stock (after adjustment for the equity restructuring related to the sale of the absorbent polymers segment) for issuance to its officers, directors and key employees. This plan provides for the award of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and phantom stock. Different terms and conditions apply to each form of award made under the plan. To date, only nonqualified stock options have been awarded. Options awarded under this plan, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value of the underlying common stock at the time of grant. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Compensation Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company. Changes in options outstanding are summarized as follows:
----------------------------------------------------------------------------------------------------------------------- December 31, 2001 December 31, 2000 December 31, 1999 --------------------------------------------------------------------------------- Weighted Weighted Weighted 1998 Long-Term Incentive Plan Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ----------------------------------------------------------------------------------------------------------------------- Options outstanding at January 1 1,574,447 $ 2.10 312,845 $ 9.64 20,000 $ 14.06 Adjustment due to equity restructuring - - 1,117,187 Granted 326,050 4.95 288,500 3.88 306,000 9.33 Exercised (156,852) 1.75 (93,844) 5.51 - - Cancelled (50,483) 2.85 (50,241) 6.02 (13,155) 9.00 ----------- ----------- ----------- Options outstanding at December 31 1,693,162 2.66 1,574,447 2.10 312,845 9.64 =========== =========== =========== Options exercisable at December 31 394,273 48,214 5,600 =========== =========== =========== Shares available for future grant at December 31 956,142 231,709 1,587,155 =========== =========== =========== -----------------------------------------------------------------------------------------------------------------------
All Stock Option Plans The following table summarizes information about stock options outstanding and exercisable at December 31, 2001:
----------------------------------------------------------------------------------------------------------------------- Options Outstanding Options Exercisable --------------------------------------------------------------------------------- Weighted Range of exercise prices Average Weighted Weighted Number Remaining Average Number Average of Contractual Exercise Of Exercise Shares Life (Yrs.) Price Shares Price ----------------------------------------------------------------------------------------------------------------------- $ 0.455 - $ 1.568 1,233,782 5.96 $ 1.526 630,312 $ 1.485 1.786 - 2.062 1,168,746 4.25 1.985 987,577 1.971 2.091 - 2.381 1,142,307 5.43 2.294 698,078 2.300 2.450 - 5.000 679,364 8.61 4.170 59,694 2.450 ---------- ---------- Total 4,224,199 5.77 2.286 2,375,661 1.951 ========== ========== -----------------------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-25 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) (12) ACCRUED LIABILITIES Accrued liabilities at December 31 consisted of: ------------------------------------------------------ 2001 2000 ------------------------------------------------------ Accrued severance taxes $ 2,329 $ 2,062 Accrued employee costs 4,326 3,675 Accrued vacation pay 1,438 1,446 Accrued bonus 3,655 2,403 Accrued commissions 1,738 1,712 Other 8,358 9,981 ----------- ----------- $ 21,844 $ 21,279 =========== =========== ------------------------------------------------------ (13) CONTINGENCIES The Company is party to a number of lawsuits arising in the normal course of its business. The Company does not believe that any pending litigation will have a material adverse effect on its consolidated financial position. (14) QUARTERLY RESULTS (UNAUDITED) Unaudited summarized results for each quarter in 2001 and 2000 are as follows:
-------------------------------------------------------------------------------------------------------- 2001 Quarter ---------------------------------------------------------- First Second Third Fourth -------------------------------------------------------------------------------------------------------- Minerals $ 38,837 $ 36,437 $ 38,205 $ 36,466 Environmental 20,113 27,576 30,549 25,528 Transportation 7,562 8,513 8,832 8,226 Intersegment shipping (2,134) (2,855) (3,468) (3,099) ------------ ------------ ------------ ------------ Net sales $ 64,378 $ 69,671 $ 74,118 $ 67,121 ============ ============ ============ ============ Minerals $ 6,821 $ 7,021 $ 6,890 $ 6,857 Environmental 7,436 8,764 10,268 8,728 Transportation 803 904 954 859 ------------ ------------ ------------ ------------ Gross profit $ 15,060 $ 16,689 $ 18,112 $ 16,444 ============ ============ ============ ============ Minerals $ 3,677 $ 3,653 $ 3,528 $ 3,839 Environmental 2,680 4,052 5,374 3,048 Transportation 307 362 405 289 Corporate (3,530) (3,170) (2,949) (3,000) ------------ ------------ ------------ ------------ Operating profit $ 3,134 $ 4,897 $ 6,358 $ 4,176 ============ ============ ============ ============ Income (loss) from continuing operations $ 3,054 $ 2,963 $ 4,345 $ 2,776 ============ ============ ============ ============ Discontinued operations and extraordinary loss $ (324) $ 44 $ (257) $ 630 ============ ============ ============ ============ Net income (loss) $ 2,730 $ 3,007 $ 4,088 $ 3,406 ============ ============ ============ ============ Basic earnings (loss) per share $ 0.09 $ 0.11 $ 0.15 $ 0.12 ============ ============ ============ ============ Diluted earnings (loss) per share $ 0.08 $ 0.10 $ 0.14 $ 0.11 ============ ============ ============ ============ --------------------------------------------------------------------------------------------------------
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-26 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
-------------------------------------------------------------------------------------------------------- 2000 Quarter ---------------------------------------------------------- First Second Third Fourth -------------------------------------------------------------------------------------------------------- Minerals $ 42,718 $ 41,574 $ 39,242 $ 39,940 Environmental 19,281 26,402 29,598 22,729 Transportation 7,935 8,597 8,832 8,672 Intersegment shipping (2,269) (3,067) (3,293) (2,749) ------------ ------------- ------------ ------------ Net sales $ 67,665 $ 73,506 $ 74,379 $ 68,592 ============ ============= ============ ============ Minerals $ 9,000 $ 8,493 $ 7,998 $ 8,385 Environmental 6,433 8,205 9,460 6,832 Transportation 838 928 939 887 ------------ ------------- ------------ ------------ Gross profit $ 16,271 $ 17,626 $ 18,397 $ 16,104 ============ ============= ============ ============ Minerals $ 6,000 $ 5,277 $ 4,774 $ 5,245 Environmental 1,848 3,294 4,904 1,548 Transportation 323 406 396 352 Corporate (3,984) (3,682) (5,003) (3,728) ------------ ------------- ------------ ------------ Operating profit $ 4,187 $ 5,295 $ 5,071 $ 3,417 ============ ============= ============ ============ Income from continuing operations $ 3,022 $ 5,412 $ 5,562 $ 4,539 ============ ============= ============ ============ Discontinued operations and extraordinary loss $ 2,715 $ 316,458 $ (2,438) $ (9,033) ============ ============= ============ ============ Net income (loss) $ 5,737 $ 321,870 $ 3,124 $ (4,494) ============ ============= ============ ============ Basic earnings (loss) per share $ 0.21 $ 11.71 $ 0.11 $ (0.18) ============ ============= ============ ============ Diluted earnings (loss) per share $ 0.20 $ 10.76 $ 0.10 $ (0.16) ============ ============= ============ ============ --------------------------------------------------------------------------------------------------------
The sum of earnings per share for the 2000 quarters does not equal the full year amount due to rounding and the impact of changes in the average shares outstanding. (15) BUSINESS REALIGNMENT AND OTHER CHARGES During 2000, the Company engaged an investment banking firm to help management evaluate various strategic options to enhance shareholder value. The Company engaged in significant discussions regarding the disposition of its businesses, including the sale of certain parts and the potential spin-off of the Nanocor, Inc. subsidiary. In the process, the Company incurred approximately $2,400 in professional fees. These expenses have been included as a component of business realignment and other charges. As a result of the poor operating performance of some of the Company's subsidiaries, recoverability of their long-lived assets was assessed. That assessment indicated certain intangibles and fixed assets would not be recovered through future undiscounted cash flows expected to be generated by their operations. As a result, asset impairment charges were recorded in 1999. Details of the components of the charges are contained in the table below. The assets were written down to fair value as estimated by discounting expected future cash flows using an incremental borrowing rate. AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F-27 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The business realignment and other charges included the following:
----------------------------------------------------------------------------------------------------- 2000 1999 ----------------------------------------------------------------------------------------------------- Expenses associated with business realignment activities $ 2,357 $ - Write-down of goodwill and asset impairments - 9,470 Write-down of assets associated with the Norwegian environmental business - 2,105 ---------- ----------- Amount charged to operating profit 2,357 11,575 Income tax benefit associated with the above 907 3,330 ---------- ----------- Impact on income from continuing operations $ 1,450 $ 8,245 ========== =========== Diluted earnings per share impact $ 0.05 $ 0.30 ========== =========== -----------------------------------------------------------------------------------------------------
Schedule II Valuation and Qualifying Accounts (Dollars in thousands)
------------------------------------------------------------------------------------------------------------------- Additions ---------------------------- Charged Balance Balance at Charged to (credited) at end beginning costs and to other Other charges of Year Description of year expenses account/(2)/ add (deduct)/(1)/ year ------------------------------------------------------------------------------------------------------------------- 2001 Allowance for doubtful accounts $ 2,232 $ 929 $ - $ (1,034) $ 2,127 ============ ============ ============= ============== ========= 2000 Allowance for doubtful accounts $ 2,415 $ 946 $ (353) $ (776) $ 2,232 ============ ============ ============= ============== ========= 1999 Allowance for doubtful accounts $ 1,551 $ 2,512 $ - $ (1,648) $ 2,415 ============ ============ ============= ============== ========= -------------------------------------------------------------------------------------------------------------------
___________ /(1)/ Bad debts written off. /(2)/ Disposition of business units. F-28 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 20, 2002 AMCOL INTERNATIONAL CORPORATION By: /s/ Lawrence E. Washow ------------------------------------- Lawrence E. Washow President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ John Hughes March 20, 2002 ------------------------------------------------- John Hughes Chairman of the Board and Director /s/ Lawrence E. Washow March 20, 2002 ------------------------------------------------- Lawrence E. Washow President and Chief Executive Officer and Director /s/ Gary L. Castagna March 20, 2002 ------------------------------------------------- Gary L. Castagna Senior Vice President and Chief Financial Officer; Treasurer and Chief Accounting Officer /s/ C. Eugene Ray March 20, 2002 ------------------------------------------------- C. Eugene Ray Director /s/ Jay D. Proops March 20, 2002 ------------------------------------------------- Jay D. Proops Director /s/ Robert E. Driscoll, III March 20, 2002 ------------------------------------------------- Robert E. Driscoll, III Director /s/ Clarence O. Redman March 20, 2002 ------------------------------------------------- Clarence O. Redman Director /s/ Arthur Brown March 20, 2002 ------------------------------------------------- Arthur Brown Director /s/ Dale E. Stahl March 20, 2002 ------------------------------------------------- Dale E. Stahl Director /s/ Audrey L. Weaver March 20, 2002 ------------------------------------------------- Audrey L. Weaver Director /s/ Paul C. Weaver March 20, 2002 ------------------------------------------------- Paul C. Weaver Director INDEX TO EXHIBITS Exhibit Number ------- 3.1 Restated Certificate of Incorporation of the Company /(5)/, as amended /(10)/, as amended /(16)/ 3.2 Bylaws of the Company /(10)/ 4 Article Four of the Company's Restated Certificate of Incorporation /(5)/, as amended /(16)/ 10.1 AMCOL International Corporation 1983 Incentive Stock Option Plan /(1)/; as amended /(3)/ 10.3 Lease Agreement for office space dated September 29, 1986, between the Company and American National Bank and Trust Company of Chicago; /(1)/ First Amendment dated June 2, 1994 /(8)/; Second Amendment dated June 2, 1997 /(13)/ 10.4 AMCOL International Corporation 1987 Non-Qualified Stock Option Plan /(2)/; as amended /(6)/ 10.7 Change in Control Agreement dated September 20, 2000, by and between Registrant and Lawrence E. Washow /(21)/ 10.8 Change in Control Agreement dated September 22, 2000, by and between Registrant and Peter L. Maul /(21)/ 10.9 AMCOL International Corporation Dividend Reinvestment and Stock Purchase Plan /(4)/; as amended /(6)/ 10.10 AMCOL International Corporation 1993 Stock Plan, as amended and restated /(10)/ 10.11 Credit Agreement by and among AMCOL International Corporation and Harris Trust and Savings Bank, individually and as agent, NBD Bank, LaSalle National Bank and the Northern Trust Company dated October 4, 1994 /(7)/; First Amendment to Credit Agreement dated September 25, 1995 /(9)/, Second Amendment to Credit Agreement dated March 28, 1996 (-), Third Amendment to Credit Agreement dated September 12, 1996 /(11)/, Fourth Amendment to Credit Agreement dated December 15, 1998 /(18)/ and Fifth Amendment to Credit Agreement dated May 26, 2000 /(20)/ 10.15 AMCOL International Corporation 1998 Long-Term Incentive Plan /(15)/, as amended /(22)/ 10.16 Change in Control Agreement dated September 21, 2000, by and between Registrant and Ryan F. McKendrick /(21)/ 10.17 Asset and Stock Purchase Agreement dated November 22, 1999 by and between the Registrant and BASF Aktiengesellschaft /(19)/ 10.18 Change in Control Agreement dated September 28, 2000, by and between Registrant and Frank B. Wright, Jr. /(21)/ 10.19 Change in Control Agreement dated September 22, 2000, by and between Registrant and Gary D. Morrison /(21)/ 10.24 Special Retention Agreement dated September 18, 2000, by and between Registrant and Peter L. Maul ** /(21)/ 10.25 Change of Control Agreement dated May 17, 2001, by and between Registrant and Gary Castagna /(23)/ 21 Subsidiary List 23 Consent of KPMG LLP 27 Financial Data Schedule * Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) of Form 10-K. ** Portions of these exhibits have been omitted pursuant to a request for confidential treatment. ----------------------------------- /(1)/ Exhibit is incorporated by reference to the Registrant's Form 10 filed with the Securities and Exchange Commission on July 27, 1987. /(2)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1988. /(3)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. /(4)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1992. /(5)/ Exhibit is incorporated by reference to the Registrant's Form S-3 filed with the Securities and Exchange Commission on September 15, 1993. /(6)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1993. /(7)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1994. /(8)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1994. /(9)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1995. /(10)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995. /(11)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1996. /(13)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1997. /(15)/ Exhibit is incorporated by reference to the Registrant's Form S-8 (File 333-56017) filed with the Securities and Exchange Commission June 4, 1998. /(16)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998. /(18)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 1999. /(19)/ Exhibit is incorporated by reference to the Registrant's Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999. /(20)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 2000. /(21)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended September 30, 2000. /(22)/ Exhibit is incorporated by reference to the Registrant's Form S-8 (File 333-68664) filed with the Securities and Exchange Commission on August 30, 2001. /(23)/ Exhibit is incorporated by reference to the Registrant's Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 2001, as amended, filed August 15, 2001.