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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2002
|_| 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 (I.R.S. Employer Identification No.)
incorporation or organization)
One North Arlington, 60004-7803
1500 West Shure Drive, Suite 500 (Zip Code)
Arlington Heights, Illinois
(Address of principal executive offices)
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
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2 of the Act).
Yes x No .
----- -----
The aggregate market value of the registrant's $.01 par value Common Stock
held by non-affiliates of the registrant (based upon the per share closing price
of $6.85 per share on June 28, 2002, and, for the purpose of this calculation
only, the assumption that all of the registrant's directors and executive
officers are affiliates) was approximately $143.4 million.
Registrant had 28,052,120 shares of $.01 par value Common Stock
outstanding as of February 28, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be dated on or before April 1, 2003
are incorporated by reference into Part III hereof.
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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.
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Percentage of Sales
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2002 2001 2000
---- ---- ----
Minerals 55% 52% 55%
Environmental 34% 36% 33%
Transportation 11% 12% 12%
---- ---- ----
100% 100% 100%
==== ==== ====
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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.
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 $.7 million. 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, Colin Stewart Minchem Limited in the United Kingdom, Volclay Siam Ltd.
in Thailand, Volclay Korea Ltd. in South Korea, Volclay Pty., Ltd. in Australia,
and through its joint venture companies, 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 a 19% equity interest in 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.
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.
Specialty Minerals. The Company supplies high-grade agglomerated
bentonite to the detergent industry. 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. Specialized uses of bentonite
and other clays include flow control additives, beverage clarification and
desiccants.
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 2002, the top five customers of the minerals segment were located in
North America and accounted for approximately 31% 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.
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, 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) and
CRUDESEP(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 to enable them 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, facilitate horizontal
drilling and water wells, rehabilitate existing water wells and seal abandoned
exploration drill holes. VOLCLAY(R) GROUT, HYDRAUL-EZ(R), BENTOGROUT(R) and
VOLCLAY(R) TABLETS are among the trade names for products used in these
applications. Geothermal grouting applications utilizing GEOTHERMAL GROUT(TM)
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
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 distributors and representatives. Offshore customers are
primarily major oil companies to which products are sold on a direct basis.
5
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 2002 consumption
rates and product mix, the Company estimates its proven reserves of commercially
usable sodium bentonite at approximately 25 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.
To retain possessory rights in unpatented mining claims, 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 Wet Tons Assigned Unassigned Conversion Unpatented
thousands of tons 2002 2001 2000 of Reserves Reserves Reserves Factor Owned ** Leased
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Sodium Bentonite
Assigned
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Belle/Colony, SD 941 876 1,003 20,824 20,824 -- 77.31% 660 374 19,790
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Lovell, WY 379 382 226 25,506 25,506 -- 77.31% 15,182 9,882 442
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TOTAL ASSIGNED 1,320 1,258 1,229 46,330 46,330 -- 15,842 10,256 20,232
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Other / Unassigned
(SD, WY, MT, NV) 62 152 144 66,068 38 66,030 77.31% 55,450 4,154 6,464
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TOTAL OTHER / UNASSIGNED 62 152 144 66,068 38 66,030 55,450 4,154 6,464
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TOTAL SODIUM BENTONITE 1,381 1,410 1,373 112,398 46,368 66,030 71,292 14,410 26,696
41% 59% 63% 13% 24%
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Calcium Bentonite
Assigned
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Sandy Ridge, AL 138 145 193 3,475 3,475 -- 72.70% 1,583 -- 1,892
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Chao Yang, Liaoning,
China 31 -- -- 741 741 -- 71.00% -- -- 741
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TOTAL ASSIGNED 169 145 193 4,216 4,216 -- 1,583 -- 2,633
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Other / Unassigned -- -- -- 115 -- 115 77.31% -- -- 115
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TOTAL OTHER / UNASSIGNED -- -- -- 115 -- 115 -- -- 115
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TOTAL CALCIUM BENTONITE 169 145 193 4,331 4,216 115 1,583 -- 2,748
97% 3% 37% 63%
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Leonardite
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Gascoyne, SD 25 25 26 643 643 -- 62.57% -- -- 643
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TOTAL LEONARDITE 25 25 26 643 643 -- -- -- 643
100% 100%
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GRAND TOTALS 1,575 1,580 1,592 117,372 51,227 66,145 72,875 14,410 30,087
44% 56% 62% 12% 26%
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** 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
among 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 34 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 2002, approximately 34% of the revenues of this operation
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 continues to focus 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. Nanocor has identified commercial applications for Nanomer(R)
products in the consumer packaging, engineered products and performance coatings
markets. Plastic nanocomposites provide improved physical properties in products
used in these markets. Those improved physical properties include heat
resistance, dimensional stability and strength for engineered materials and gas
and moisture barrier for packaging materials.
The Company has a nanocomposite production facility in Aberdeen,
Mississippi. 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.
During 2002 the Company reviewed its alternatives in improving the
sales opportunities for its nanocomposite products. In connection with that
review the Company determined its best interest was served by finding partners
that had a strong presence in markets where nanocomposites could gain
significant business. The result was the execution of two strategic alliance
agreements.
In January 2003, an agreement was reached with Mitsubishi Gas Chemical
Company (MGC) which involves the manufacture and sale of high-barrier plastics
that will combine the Company's patented nanocomposite technology and MXD6,
which is a form of nylon. MGC is the world's largest producer of MXD6, which is
an established product used in consumer and industrial packaging due to its
inherent gas barrier properties. A MXD6-nanocomposite has significantly higher
gas barrier properties which will greatly improve sales potential in the
packaging market. MGC will lead sales and marketing of the product line with
assistance from the Company's sales staff. Additionally, the companies will
combine research and development resources to create new product variations. The
Company will license to MGC its intellectual property that relates to MXD6. In
addition to the sale of Nanomer products to MGC for use in the production of the
MXD6-nanocomposite, the Company will earn revenue from the profit generated from
sales of those nanocomposites by MGC.
The Company also reached an agreement with PolyOne Corporation in
January 2003 that involves the sales, marketing and development of
polyolefin-nanocomposite concentrates and, in some cases, nanocomposite
plastics. PolyOne is the world's largest polymer services company which includes
the production of plastic compounds. The focus of the alliance will be on
improving strength and fire-resistant properties of polyolefin plastics as well
as their heat stability, gas barrier and electrostatic dissipation. Polyolefins
include a wide variety of plastic resins that are used in a multitude of
consumer and industrial products, including the electronics, telecommunications,
automotives, household and packaging sectors. The companies believe that
polyolefin-nanocomposite concentrates will be easy to process and allow
production of lighter weight plastics. PolyOne will lead sales of the products
with assistance from the Company's personnel, and the companies will combine
research and development resources engaged in the creation of
polyolefin-nanocomposite compounds. Similar to its alliance agreement with MGC,
the Company will license its intellectual property that relates to
polyolefin-nanocomposites to PolyOne. In addition to earning profits from the
sale of Nanomer products to PolyOne for use in the production of
polyolefin-nanocomposites, the Company will earn revenue from the profit
generated from sales of those nanocomposites. Sales to date from these alliances
have been insignificant.
9
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 30% of the Company's 2002 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, Thailand and Korea 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, Poland and Korea, primarily for the European and Asian markets.
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.
EMPLOYEES
As of December 31, 2002, the Company employed 1,134 persons, 401 of
whom were employed outside of the United States. At December 31, 2002, there
were approximately 734, 319 and 26 persons employed in the Company's minerals,
environmental and transportation segments, respectively, along with 55 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 62 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.
AVAILABLE INFORMATION
The Company files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements and other information filed by the Company at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call (800) SEC-0330 for further information on the Public Reference Room. The
SEC maintains an Internet web site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with
the SEC. The Company's filings are also available to the public at the web site
maintained by the SEC, www.sec.gov.
The Company's principal Internet address is www.amcol.com. The Company
makes available free of charge on www.amcol.com its annual, quarterly and
current reports, and amendments to those reports, as soon as reasonably
practicable after it electronically files such material with, or furnishes it
to, the SEC.
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) 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)and fluxes
- --------------------------------------------------------------------------------
New Haven, WV Blend melt additives
- --------------------------------------------------------------------------------
Sandy Ridge, AL Mine and process calcium bentonite;
blend ADDITROL(R)
- --------------------------------------------------------------------------------
Toronto, Ontario, Canada (3) Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Troy, IN Blend ADDITROL(R)
- --------------------------------------------------------------------------------
Waterloo, IA Blend ADDITROL(R)
- --------------------------------------------------------------------------------
York, PA Blend ADDITROL(R); package cat litter
- --------------------------------------------------------------------------------
Beijing, China (2) Sales Office
- --------------------------------------------------------------------------------
Chao Yang, Liaoning, China (4) Mine and process calcium bentonite
- --------------------------------------------------------------------------------
Ellesmere Port, Wirral, U.K. (1) Process fluorspar
- --------------------------------------------------------------------------------
Geelong, Victoria, Australia (1)(3) Process bentonite; blend ADDITROL(R)
- --------------------------------------------------------------------------------
Kyung-Buk, South Korea Mine and process bentonite
- --------------------------------------------------------------------------------
Rayong, Thailand Process bentonite
- --------------------------------------------------------------------------------
Telford, Shropshire, U.K. (1) Package silica gel and desiccant clay
- --------------------------------------------------------------------------------
Winsford, Cheshire, U.K. Process calcium bentonite and other
minerals
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Pyeongtaek, South Korea Manufacture Bentomat(R)geosynthetic
clay liners
- --------------------------------------------------------------------------------
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.
(4) 75% owned joint venture.
11
Item 3. Legal Proceedings
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 41 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 56 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 53 Vice President of the Company since 1993 and President of Nanocor, Inc. since 1995.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Ryan F. McKendrick 51 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 47 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.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Clarence O. Redman 60 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 49 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.
- ------------------------------------------------------------------------------------------------------------------------------------
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.
12
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
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2002: 1st Quarter $ 7.35 $ 6.04 $0.015
- ----------------------------------------------------------------------------------------------------
2nd Quarter $ 6.60 $ 5.57 0.020
- ----------------------------------------------------------------------------------------------------
3rd Quarter $ 6.65 $ 4.75 0.030
- ----------------------------------------------------------------------------------------------------
4th Quarter $ 6.09 $ 4.81 0.030
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Fiscal Year Ended December 31, 2001: 1st Quarter $ 5.00 $ 3.55 $0.010
- ----------------------------------------------------------------------------------------------------
2nd Quarter $ 6.24 $ 3.84 0.015
- ----------------------------------------------------------------------------------------------------
3rd Quarter $ 6.70 $ 5.55 0.015
- ----------------------------------------------------------------------------------------------------
4th Quarter $ 7.20 $ 5.60 0.015
- ----------------------------------------------------------------------------------------------------
The Company has paid cash dividends every year for 65 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 28, 2003, there were 2,875 holders of record of the
common stock, excluding shares held in street name.
Item 6. Selected Financial Data
The following is selected financial data for the Company and its
subsidiaries for the five years ended December 31, 2002. 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.
13
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
- -------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Operations Data
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 298,873 $ 275,288 $ 284,142 $ 296,118 $ 292,783
- -------------------------------------------------------------------------------------------------------------------
Gross profit 71,868 66,305 68,398 67,313 64,218
- -------------------------------------------------------------------------------------------------------------------
General, selling and administrative expenses 52,210 47,740 48,071 56,925 50,416
- -------------------------------------------------------------------------------------------------------------------
Business realignment and other charges -- -- 2,357 11,575 --
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 19,658 18,565 17,970 (1,187) 13,802
- -------------------------------------------------------------------------------------------------------------------
Investment income -- 3,015 9,816 -- --
- -------------------------------------------------------------------------------------------------------------------
Change in value of interest rate swap -- (401) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net interest expense (512) (2,196) (3,160) (3,440) (2,121)
- -------------------------------------------------------------------------------------------------------------------
Net other income (expense) 43 223 594 (1,069) 694
- -------------------------------------------------------------------------------------------------------------------
Pretax income (loss) 19,189 19,206 25,220 (5,696) 12,375
- -------------------------------------------------------------------------------------------------------------------
Income taxes (benefit) 6,916 6,155 7,155 (1,815) 3,524
- -------------------------------------------------------------------------------------------------------------------
Income from joint ventures 531 28 470 448 8
- -------------------------------------------------------------------------------------------------------------------
Minority interest in net loss of subsidiary 164 59 -- -- --
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 12,968 13,138 18,535 (3,433) 8,859
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations -- (879) (8,185) 25,667 13,226
- -------------------------------------------------------------------------------------------------------------------
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 12,968 13,231 326,237 22,234 22,085
- -------------------------------------------------------------------------------------------------------------------
Per Share Data
- -------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share (2)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 0.46 0.47 0.67 (0.13) 0.32
- -------------------------------------------------------------------------------------------------------------------
Discontinued operations -- 0.01 11.20 0.96 0.47
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss -- -- (0.02) -- --
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- (0.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 0.46 0.47 11.85 0.83 0.79
- -------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share (3)
- -------------------------------------------------------------------------------------------------------------------
Continuing operations 0.43 0.43 0.62 (0.12) 0.31
- -------------------------------------------------------------------------------------------------------------------
Discontinued operations -- 0.01 10.29 0.94 0.46
- -------------------------------------------------------------------------------------------------------------------
Extraordinary loss -- -- (0.01) -- --
- -------------------------------------------------------------------------------------------------------------------
Cumulative effect of change in accounting
principle (net of tax) -- (0.01) -- -- --
- -------------------------------------------------------------------------------------------------------------------
Net income 0.43 0.43 10.90 0.82 0.78
- -------------------------------------------------------------------------------------------------------------------
Stockholders' equity (1) 5.43 4.98 4.69 6.94 6.44
- -------------------------------------------------------------------------------------------------------------------
Dividends 0.10 0.06 0.16 0.27 0.23
- -------------------------------------------------------------------------------------------------------------------
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)
- ------------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding Data
- ------------------------------------------------------------------------------------------------------------------------------------
End of period 27,881,903 28,256,389 28,781,304 26,852,056 26,869,372
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-basic 28,133,795 28,193,234 27,523,157 26,772,569 27,918,391
- ------------------------------------------------------------------------------------------------------------------------------------
Incremental impact of stock options 2,014,725 2,412,826 2,433,533 426,694 467,469
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average for the period-diluted 30,148,520 30,606,060 29,956,690 27,199,263 28,385,860
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
- ------------------------------------------------------------------------------------------------------------------------------------
Current assets $ 111,133 $ 101,177 $ 259,980 $ 138,614 $ 141,442
- ------------------------------------------------------------------------------------------------------------------------------------
Cash equivalents included in current assets -- -- 168,549 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net current assets of discontinued
operations included in current assets -- 798 -- 47,668 41,859
- ------------------------------------------------------------------------------------------------------------------------------------
Net property and equipment 81,847 72,348 74,665 78,911 80,158
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term assets 28,848 22,805 31,122 102,164 105,190
- ------------------------------------------------------------------------------------------------------------------------------------
Net long-term assets of discontinued
operations included in long-term assets -- 311 6,932 87,554 82,958
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets 221,828 196,330 365,767 319,689 316,874
- ------------------------------------------------------------------------------------------------------------------------------------
Current liabilities 52,639 31,083 169,584 33,557 51,448
- ------------------------------------------------------------------------------------------------------------------------------------
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 5,573 13,245 51,334 91,067 93,359
- ------------------------------------------------------------------------------------------------------------------------------------
Other long-term liabilities 12,233 11,275 9,942 7,692 8,869
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity 151,383 140,727 134,907 186,448 172,914
- ------------------------------------------------------------------------------------------------------------------------------------
Other Statistics for Continuing Operations
- ------------------------------------------------------------------------------------------------------------------------------------
Depreciation, depletion and amortization $ 20,009 $ 17,427 $ 17,000 $ 19,093 $ 17,195
- ------------------------------------------------------------------------------------------------------------------------------------
Capital expenditures 16,223 14,730 14,975 15,796 23,976
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit margin 24.0% 24.1% 24.1% 22.7% 21.9%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) margin 6.6% 6.7% 6.3% (0.4%) 4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Operating profit margin before business
realignment and other charges 6.6% 6.7% 7.2% 3.7% 4.7%
- ------------------------------------------------------------------------------------------------------------------------------------
Pretax profit (loss) margin 6.4% 7.0% 8.9% (1.9%) 4.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Effective tax (benefit) rate 36.0% 32.0% 28.4% (31.9%) 28.5%
- ------------------------------------------------------------------------------------------------------------------------------------
Net profit (loss) from continuing operations margin 4.3% 4.8% 6.5% (1.2%) 3.0%
- ------------------------------------------------------------------------------------------------------------------------------------
Return on ending equity 8.6% 9.3% 13.7% (1.8%) 5.1%
- ------------------------------------------------------------------------------------------------------------------------------------
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 of America. The preparation of these
financial statements requires management to select accounting policies that are
appropriate for the Company's business, and to make certain estimates, judgments
and assumptions about matters that are inherently uncertain in applying those
policies. On an ongoing basis, the Company re-evaluates these estimates,
judgments and assumptions for reasonableness because of the critical impact that
these factors have on the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the periods presented. Actual results may differ from these estimates.
The Company's management has identified the most critical accounting
policies upon which the financial statements are based and that involve the most
complex and subjective decisions and assessments. These policies relate to the
valuation of accounts receivable and inventories, the recognition of
depreciation and impairment in the carrying value of property, plant and
equipment, and accounting for pension benefits. Senior management of the Company
has discussed the development, selection and disclosure of these policies with
the members of the Audit Committee of our Board of Directors. These accounting
policies are disclosed in the notes to the consolidated financial statements.
The discussion which follows should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this Annual Report
on Form 10-K.
Described here are the critical accounting policies of the Company:
Valuation of Accounts Receivable
The Company provides credit to customers in the ordinary course of
business and performs ongoing credit evaluations. The Company's customer base is
diverse and includes customers located throughout the world. Payment terms in
certain of the foreign countries in which the Company does business are longer
than those that are customary in the United States, and as a result, may give
rise to additional credit risk related to outstanding accounts receivable from
these non-U.S. customers. Likewise, a change in the financial position,
liquidity or prospects of any of the Company's customers could have an impact on
the Company's ability to collect amounts due. While concentrations of credit
risk related to trade receivables are somewhat limited by the Company's large
customer base, the Company does extend significant credit to some of its
customers.
The Company makes estimates of the amounts of its gross accounts
receivable that will not be collectible, and records an allowance for doubtful
accounts to reduce the carrying value of accounts receivable to the amount that
is expected to be realized. The allowance for doubtful accounts is established
based upon the Company's historical bad debt experience, a review of the overall
aging of the accounts, and an analysis of specific customer accounts,
particularly those with past-due balances. The recorded allowance for doubtful
accounts is intended to cover specific customer collection issues identified by
management at the balance sheet date, and to provide for potential losses from
other accounts based on the Company's historical experience. Increases in the
allowance for doubtful accounts are recorded as an expense and included in
general, selling and administrative expenses in the period identified. The
Company's estimate of the required allowance for doubtful accounts is a critical
accounting estimate because it is susceptible to change from period to period.
In addition, it requires management to make judgments about the future
collectibility of customer accounts.
Inventory Valuation
Inventories are recorded at the lower of actual manufactured or
purchased cost, or estimated net realizable value. In order to determine net
realizable value, management regularly reviews inventory quantities on hand and
evaluates significant items to determine whether they are excess or obsolete.
The Company records the value of estimated excess or obsolete inventory as a
reduction of inventory and as an expense which is included in cost of sales in
the period it is
16
identified. The Company's estimate of excess and obsolete inventory is a
critical accounting estimate because it is susceptible to change from period to
period. In addition, it requires management to make judgments about the future
demand for inventory.
In order to quantify excess or obsolete inventory, management prepares
lists of inventory quantities on hand and determines the amount of such
inventories that, based on projected demand, are not anticipated to be sold
within the next 12 to 24 months or, based on our current product offerings, are
excess or obsolete. This list is then reviewed with sales and production
management personnel to determine whether this list of potential excess or
obsolete inventory is complete. Factors which impact this evaluation include,
for example, whether there has been a change in the market or packaging for
particular products, and whether there are components of inventory that
incorporate obsolete technology. In certain businesses in which the Company is
engaged, such as the domestic cat litter business, product and packaging changes
can occur rapidly and expose the Company to excess and obsolete inventories.
Goodwill and Long-lived Assets
The Company has made substantial investments in property, plant and
equipment and has a moderate investment in goodwill. For property, plant and
equipment, the Company evaluates the recoverability of these assets whenever
events or changes in circumstances indicate that the carrying value of the
assets may not be recoverable. For goodwill, the Company performs an annual
impairment assessment (or more frequently if impairment indicators arise) as
required by Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets.
In analyzing the fair value of goodwill and assessing the
recoverability of the carrying value of property, plant and equipment,
management uses models which are based on estimates of future operating
performance and related cash flows. In preparing these models, management must
make estimates in projecting future cash flows attributable to the reporting
unit or assets being tested, in selecting a discount rate that reflects the
related business risks, and in determining the appropriate perpetuity or
disposal value. In developing these projections of future cash flows, the
Company makes a variety of important assumptions and estimates that have a
significant impact on management's assessments of whether the carrying values of
goodwill and property, plant and equipment should be adjusted to reflect
impairment. Among these are assumptions and estimates about the future growth
and profitability of the related business unit or asset, and assumptions about
anticipated future economic, regulatory and political conditions in the relevant
market.
The Company's estimates related to the carrying values of goodwill and
property, plant and equipment are considered to be critical accounting estimates
because they are susceptible to change from period to period based on a variety
of factors. For example, judgment is required to determine whether events or
changes in circumstances indicate that the carrying value of the assets may not
be recoverable. In addition, in performing assessments of the carrying values of
these assets, management is required to make judgments about the future
business, economic, regulatory, and political conditions affecting these assets,
as well as to select the appropriate risk-related rates for discounting
estimated future cash flows, and to develop reasonable estimates of disposal
values.
Retirement Benefits
The Company sponsors a defined-benefit pension plan for substantially
all of its domestic employees. In order to measure the expense and obligations
associated with these retirement benefits, management must make a variety of
estimates including discount rates used to value certain liabilities, expected
return on plan assets set aside to fund these liabilities, rate of compensation
increase, employee turnover rates, retirement rates, mortality rates and other
factors. The Company's benefit plan committee determines the key assumptions
related to the discount rate, expected investment rate of return and
compensation increases after consulting with the actuarial firm that performs
the calculations. Other assumptions are also set based on consultation with the
Company's actuaries.
The Company bases its estimates on its historical experience as well as
current facts and circumstances. The discount rate reflects the market rate for
high-quality fixed income debt instruments on the measurement date. The rate is
used to discount the future cash flows of benefit obligations back to the
measurement date. An increase in the discount rate reduces
17
pension expense and liabilities. The expected long-term rate of return on plan
assets is determined using historic market return trends combined with current
market conditions. An increase in the expected long-term rate of return on plan
assets reduces pension expense and liabilities. The expected rate of
compensation increase is determined based on the Company's near-term outlook and
assumed inflation. Higher compensation rate increases increase pension expense
and liabilities. Retirement rates are based primarily on actual plan experience.
Mortality rates are based on tables published by the insurance industry.
Different estimates used by management could result in the Company recognizing
different amounts of expense over different periods of time.
Liquidity and Financial Resources
At December 31, 2002, the Company had outstanding debt of $18.2 million
and cash and of $15.6 million, compared with $13.2 million of outstanding debt
and $10.3 million of cash at December 31, 2001. Long-term debt (including
current maturities) represented 10.7% of total capitalization at December 31,
2002, compared with 8.6% at December 31, 2001.
The Company had a current ratio of 2.11-to-1 at December 31, 2002 and
working capital of approximately $58.5 million, compared with 3.25-to-1 and
$70.1 million, respectively, at December 31, 2001. The current ratio and working
capital at December 31, 2002, were influenced by the reclassification of $12.6
million of long-term debt to short-term debt due to the maturity of the
Company's revolving credit facility in October, 2003.
The following schedule sets forth details of the Company's contractual
obligations at December 31, 2002:
- --------------------------------------------------------------------------------
Payments due by period
-------------------------------------------
Less
than 1 1-3 4-5 After 5
Total Year Years Years Years
- --------------------------------------------------------------------------------
(in millions)
- --------------------------------------------------------------------------------
Bank debt $18.2 $12.6 $ -- $ -- $5.6
- --------------------------------------------------------------------------------
Operating leases 11.3 2.7 4.3 3.1 1.2
----- ----- ---- ---- ----
- --------------------------------------------------------------------------------
Total contractual cash obligations $29.5 $15.3 $4.3 $3.1 $6.8
===== ===== ==== ==== ====
- --------------------------------------------------------------------------------
Bank debt includes $12.6 million due under a revolving credit
agreement, which provides for a commitment of $125 million in borrowing capacity
and matures on October 31, 2003. Borrowing rates on the facility can range from
0.25% to 0.75% above the 3-month LIBOR depending upon the Company's
capitalization ratios and the amount of the credit line used. The facility
requires certain covenants to be met including specific amounts of working
capital and tangible net worth, and also limits the Company's ability to make
additional borrowings and guarantees. The Company was in compliance with these
covenants at December 31, 2002.
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.
Investing and financing activities were funded by cash flow from
operations which was $36.6 million and net borrowings of $5.6 million from the
Company's revolving credit facility. The Company completed two acquisitions in
2002 which totaled $17.0 million. Capital expenditures for the year were $16.2
million while dividends paid to common shareholders totaled $2.7 million. The
Company repurchased $6.9 million of its common stock in 2002 and received $2.6
million in proceeds from the exercise of stock options.
Approximately $5.3 million remains available for repurchases of common
stock under an authorization approved by the Company's Board of Directors in
May, 2002.
Management believes that the Company has adequate resources to fund the
planned capital expenditures, dividend
18
payments and anticipated working capital requirements of the Company through its
existing committed credit lines, cash on hand and future operating cash flow.
Management expects to be able to either extend or replace the Company's current
revolving credit facility when it expires in October, 2003.
Since the mid 1980's, the Company and/or its subsidiaries have been
named as one of a number of defendants in product liability lawsuits relating to
the minor free-silica content within the Company's bentonite products used in
the metalcasting industry. The plaintiffs in these lawsuits are primarily
employees of the Company's foundry customers. To date, the Company has not
incurred significant costs in defending these matters. The Company believes it
has adequate insurance coverage and does not believe the litigation will have a
material adverse impact on the financial condition, liquidity or results of the
operation of the Company.
Results of Operations for the Three Years Ended December 31, 2002
Net sales increased by $23.5 million, or 8.6%, from 2001 to 2002 and
declined by $8.9 million, or 3.1% from 2000 to 2001. Approximately 87% of the
increase in net sales in 2002 as compared to 2001 was attributed to the
acquisition of Colin Stewart Minchem Limited (CSM) which was completed on May 1,
2002. CSM is a reporting unit within the minerals segment. The 2000 to 2001
sales decrease was primarily attributed to lower volume and pricing in certain
domestic minerals businesses.
Gross profit increased $5.6 million, or 8.4%, from 2001 to 2002 and
declined by $2.1 million, or 3.1%, from 2000 to 2001. CSM contributed
approximately 71% of the increase in gross profit in 2002 as compared to 2001,
while increased gross profits and margins from the environmental segment
contributed approximately 25% of the increase in 2002. The 2000 to 2001 decrease
was commensurate with the sales decrease for the period.
Operating profit increased by $1.1 million, or 5.9%, from 2001 to 2002.
The increase was attributed to the increase in sales and gross profits.
Operating profit increased by $0.6 million, or 3.3%, from 2000 to 2001. The 2000
period included business realignment charges of $2.4 million which consisted of
fees paid to professional firms that were hired to assist the Company in
exploring means of improving shareholder value.
Income from joint ventures was $0.5 million in 2002, an increase of
$0.5 million from 2001. In 2001, the Company recorded a write-down of $0.4
million related to an investment in a Chinese joint venture. The Company's
interest in the joint venture was sold during 2002. The decrease in income from
joint ventures from 2000 to 2001 was also caused by the write-down in the
Chinese joint venture investment.
A review of sales, gross profit, general, selling and administrative
expenses and operating profit by segment follows:
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------------------------------------
Minerals 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Product sales $156,174 91.0% $133,903 89.3% $146,017 89.3%
Shipping revenue 15,369 9.0% 16,042 10.7% 17,457 10.7%
-------- ----- -------- ----- -------- -----
Net sales 171,543 100.0% 149,945 100.0% 163,474 100.0% $21,598 14.4% $(13,529) -8.3%
-------- ----- -------- ----- -------- -----
Cost of sales - product 124,267 72.4% 106,314 70.9% 112,141 68.6%
Cost of sales - shipping 15,369 9.0% 16,042 10.7% 17,457 10.7%
-------- ----- -------- ----- -------- -----
Cost of sales 139,636 81.4% 122,356 81.6% 129,598 79.3%
-------- ----- -------- ----- -------- -----
Gross profit 31,907 18.6% 27,589 18.4% 33,876 20.7% 4,318 15.7% (6,287) -18.6%
General, selling and
administrative expenses 16,037 9.3% 12,892 8.6% 12,580 7.7% 3,145 24.4% 312 2.5%
-------- ----- -------- ----- -------- -----
Operating profit $ 15,870 9.3% $ 14,697 9.8% $ 21,296 13.0% $ 1,173 8.0% $ (6,599) -31.0%
- -----------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
CSM contributed sales of $20.5 million since its acquisition, which was
effective from May 1, 2002. Increased sales from the international subsidiaries
accounted for the remainder of the increase. Within the domestic minerals
business, sales
19
to the metalcasting market increased, but that was offset by
declines in the pet products and export units. Overall, sales from the domestic
minerals business were flat compared to 2001.
Approximately $4.0 million of the improvement in gross profit was
attributed to CSM. Gross profit from the domestic minerals business was flat
compared to 2001.
CSM accounted for approximately $2.0 million of the increase in
general, selling and administrative expenses. Higher personnel and benefit
expenses in the domestic minerals business accounted for the remaining increase.
2001 vs. 2000
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 for the
years ended 2001 and 2000 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 due to 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.
Lower volume levels in the domestic metalcasting and cat litter
businesses caused the 2001 gross margin and operating margin to drop by 230 and
320 basis points, respectively, from 2000 results.
- ---------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------------------------------------------------
Environmental 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Product sales $ 98,208 92.7% $ 96,046 92.6% $ 89,315 91.1%
Shipping revenue 7,718 7.3% 7,720 7.4% 8,695 8.9%
-------- ----- -------- ----- -------- -----
Net sales 105,926 100.0% 103,766 100.0% 98,010 100.0% $ 2,160 2.1% $5,756 5.9%
-------- ----- -------- ----- -------- -----
Cost of sales - product 61,615 58.2% 60,850 58.6% 58,385 59.6%
Cost of sales - shipping 7,718 7.3% 7,720 7.4% 8,695 8.8%
-------- ----- -------- ----- -------- -----
Cost of sales 69,333 65.5% 68,570 66.1% 67,080 68.4%
Gross profit 36,593 34.5% 35,196 33.9% 30,930 31.6% 1,397 4.0% 4,266 13.8%
General, selling and
administrative expenses 22,220 20.9% 20,042 19.3% 19,336 19.8% 2,178 10.9% 706 3.7%
-------- ----- -------- ----- -------- -----
Operating profit $ 14,373 13.6% $ 15,154 14.6% $ 11,594 11.8% $ (781) (5.2%) 3,560 30.7%
- ---------------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
International sales accounted for all of the increase in sales over
2001. The segment's European offshore drilling service and building materials
businesses contributed to the increase in international sales. Exports from the
domestic business increased over 2001 but that was offset by a decrease in the
domestic offshore business.
Improved production costs in the segment's domestic lining technology
business contributed all of the increase in gross profit from 2001. Gross
profits from the international business declined even with the increase in
sales. Higher production costs at the segment's European operations caused the
decline. Improved production costs at the domestic lining technology operations
increased gross profit to offset the decline in the European operations.
General, selling and administrative expenses increased due to higher
compensation and benefit expenses, information technology costs, marketing and
promotion costs, and research and development spending.
20
2001 vs. 2000
Sales increased 5.9% in 2001 over 2000 primarily due to growth in the
offshore services and European business units. 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.
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------------------------
Transportation 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- -----------------------------------------------------------------------------------------------------------------------------
Net sales $32,509 100.0% $33,133 100.0% $34,036 100.0% $(624) (1.9%) $(903) (2.7%)
Cost of sales 29,141 89.6% 29,613 89.4% 30,444 89.4%
------ ----- ------ ----- ------ -----
Gross profit 3,368 10.4% 3,520 10.6% 3,592 10.6% (152) (4.3%) (72) (2.0%)
General, selling and
administrative expenses 2,401 7.4% 2,157 6.5% 2,115 6.2% 244 11.3% 42 2.0%
------ ----- ------ ----- ------ -----
Operating profit $ 967 3.0% $ 1,363 4.1% $ 1,477 4.4% $(396) (29.1%) $(114) (7.7%)
- -----------------------------------------------------------------------------------------------------------------------------
2002 vs. 2001
Approximately 34% of the segment's sales involve the domestic minerals
and environmental segments. Net sales declined due to lower third-party customer
and intersegment shipments. Fuel costs remained flat with 2001 levels. Increased
general, selling and administrative expenses were associated with higher
information technology and compensation costs.
2001 vs. 2000
Approximately 34% of the segment's sales involve the domestic minerals
and environmental segments. Lower sales in 2001 were primarily due to reduced
business levels with third party customers.
Gross margins for 2001 equaled 2000 as the mix of broker and trucking
business was the same in both years. Fuel costs remained flat with 2000 levels.
- ----------------------------------------------------------------------------------------------------------------
Year Ended December 31,
------------------------------------------------------------------------------
Corporate 2002 2001 2000 2002 vs. 2001 2001 vs. 2000
- ----------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
- ----------------------------------------------------------------------------------------------------------------
Intersegment shipping sales $(11,105) $(11,556) $(11,378)
Intersegment shipping costs (11,105) (11,556) (11,378)
-------- -------- --------
Gross profit -- -- --
Corporate general, selling
and administrative expenses 7,108 8,020 8,010 $ (912) (11.4%) $ 10 0.1%
Nanocomposite business
development expenses 4,444 4,629 6,030 (185) (4.0%) (1,401) (23.2%)
Business realignment and
other charges -- -- 2,357 -- 0.0% (2,357) (100.0%)
-------- -------- --------
Operating loss $(11,552) $(12,649) $(16,397) $ 1,097 8.7% $ 3,748 (22.9%)
-------
2002 vs. 2001
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, marketing, research and operating costs related to the development
of the
21
nanocomposite business are included in this segment. Management continues to
believe its nanocomposite technology has strong commercial potential.
Approximately 60% of the lower corporate administrative expenses in the
current year period were associated with increased allocation of certain costs
to the mineral, environmental and transportation segments. The remaining
decrease was attributed to lower personnel and legal costs. The decline in
nanocomposite expenses is associated with a restructuring of the business that
was implemented in the second quarter of 2001.
2001 vs. 2000
Corporate administrative expenses were flat in 2001 compared with 2000.
The nanocomposite business was restructured in the second quarter of
2001 which resulted in lower research costs in comparison to 2000.
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 invested
funds. The Company paid approximately $130 million in 2001 for income taxes
associated with the sale. The remaining invested funds were liquidated in the
third quarter of 2001 and used to pay down long-term debt.
Net Interest Expense
Net interest expense was $0.5 million, $2.2 million and $3.2 million in
2002, 2001, and 2000, respectively. As discussed above, the Company reduced debt
by approximately $40 million in the third quarter of 2001 by liquidating funds
previously invested in cash equivalent securities. Consequently, the decrease in
2002 and 2001 was primarily due to lower average debt levels. Additionally, 2002
expense benefited from lower interest rates.
Other Income (Expense)
Other income in 2002 was less than $0.1 million. In 2001 and 2000,
other income was $0.2 million and $0.6 million, respectively. This item reflects
a number of miscellaneous transactions including gains and losses related to
foreign exchange transactions and disposals of fixed assets.
Income Taxes
The effective income tax rate for 2002 was 36.0% compared to 32.0% in
2001 and 28.4% in 2000. The increased tax rate in 2002 was attributed to a
greater portion of earnings generated in foreign jurisdictions with higher
corporate income tax rates. The rate increased in 2001 from 2000 primarily from
lower tax benefits associated with export incentives and higher state income
taxes.
22
Discontinued Operations
Discontinued operations reflect the operating results of the U.K.
metalcasting and cat litter businesses, which were sold or closed 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.
Other Items
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
Net income for 2002 was $13.0 million, a slight decrease from 2001.
Lower investment income was the primary reason for the decline. 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.
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 greater number of common share equivalents during the second
half of 2000. The weighted average number of shares of common stock and common
stock equivalent shares outstanding was approximately 30.1 million in 2002, 30.6
million in 2001 and 30.0 million in 2000.
There were 27.9 million shares outstanding, excluding common share
equivalents, at December 31, 2002 compared to 28.2 million at December 31, 2001.
The 0.3 million share decrease was related to the exercise of stock options net
of the purchase of treasury shares.
Income from continuing operations in 2002 was $13.0 million, or $0.43
per diluted share, compared to $13.1 million, or $0.43 per diluted share, in
2001 and $18.5 million, or $0.62 per diluted share, in 2000. As previously
discussed, investment income and business realignment charges impacted the
reported earnings in 2001 and 2000. An analysis detailing the effects of these
items on diluted earnings per share from continuing operations appears below:
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------
Business realignment and other charges $ -- $ -- $(0.05)
Investment income -- 0.06 0.20
Income from operations excluding the above 0.43 0.37 0.47
----- ----- ------
Diluted earnings from continuing
operations $0.43 $0.43 $ 0.62
- --------------------------------------------------------------------------------
23
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 $0.04 from the gain on the sale of these businesses,
compared to ($0.51) for 2000.
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. The income from discontinued operations in 2000 was for
the five months ended May 31, 2000.
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.
Reliance on Metalcasting and Construction Industries
Approximately 48% of our minerals segment's sales and 30% of our
environmental segment's sales in 2002 were to the metalcasting and construction
markets, respectively. The metalcasting and construction markets depend