Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South Dakota in 1924 as the Bentonite Mining & Manufacturing Co. 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 may be generally divided into three principal categories of operations; minerals, absorbent polymers and environmental. The Company also operates a transportation business primarily for delivery of its own products. In general, the Company's products are used for their liquid-absorption properties. The Company is a leading producer of bentonite products, which have a variety of applications, including use as a bonding agent to form sand molds for metal castings, as a cat litter, as a moisture barrier in commercial construction and landfills, and in a variety of other industrial, commercial and agricultural applications. The Company also manufactures absorbent polymers, predominantly superabsorbent polymers, for use in disposable baby diapers and other personal care items, such as adult incontinence and feminine hygiene products.
The following table sets forth the percentage contributions to net sales of the Company attributable to its mineral, absorbent polymer, environmental and transportation segments for the last five calendar years.
Net revenues, operating profit and identifiable assets attributable to each of the Company's business segments are set forth in Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein, which Note is incorporated herein by reference.
MINERALS
The Company's mineral business is principally conducted through American Colloid Company in the United States and Volclay Limited in the United Kingdom.
Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to ten feet under overburden of up to 120 feet. There are two basic types of bentonite, each having different chemical and physical properties. These are commonly known as sodium (western) bentonite and calcium (southern) bentonite. A third type of clay, a less pure variety of calcium montmorillonite called fuller's earth, is used as a form of cat litter and as a carrier for agri-chemicals in addition to other minor applications.
The Company's principal bentonite products are marketed under various internationally registered trade names, including VOLCLAY and PANTHER CREEK. The Company's cat litter is sold under various trade names and private labels.
Principal Markets and Products
Durable Goods
Metalcasting. In the formation of sand molds for metal castings, sand is bonded with bentonite and various other additives to yield the desired casting form and surface finish. The Company produces blended mineral binders containing sodium and calcium bentonites, sold under the trade name ADDITROL. In addition, several high-performance specialty products are sold to foundries and companies that service foundries.
Iron Ore Pelletizing. The Company is a major supplier of sodium bentonite for use as a pelletizing aid in the production of taconite pellets in North America.
Well Drilling. Sodium bentonite and leonardite are ingredients of drilling mud, which allow rock cuttings to be suspended and brought to the surface in oil and gas well drilling. Drilling mud lubricates the drilling bit and coats the underground formations to prevent hole collapse and drill bit seizing. The Company's primary trademark for this application is PREMIUM GEL.
Other Industrial. The Company is a supplier of fuller's earth products for use as an oil and grease absorbent in industrial applications. It also 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 two types of cat litter products, a fuller's earth-based (traditional) product and a sodium bentonite-based scoopable (clumping) litter. The Company's scoopable products' clump-forming capability traps urine, allowing for easy removal of the odor-producing elements from the litter box. Scoopable litter has grown to 42% of the U.S. grocery market for cat litter in 1995 from 0.4% in 1989. Both types of products are sold primarily to private label grocery and mass merchandisers, though the Company also sells its own brands to the grocery, pet store and mass markets. The Company's products are marketed under various trade names.
Fine Chemicals. Purified grades of sodium bentonite are marketed to the pharmaceutical and cosmetics industries. Small amounts of purified bentonite act as a binding agent for pharmaceutical tablets, and bentonite's expansion quality also aids in tablet disintegration. Bentonite also acts as a suspension agent and thickener in lotions and has a variety of other specialized uses as a flow control additive. Calcium bentonite is used as a catalyst or as a clarifying agent for edible oils, fats, dimer acids and petroleum products.
Agricultural. Sodium bentonite, calcium bentonite and fuller's earth are sold as pelletizing aids in livestock feed and as anticaking agents for feeds during storage or in transit. Fuller's earth and sodium bentonite are used as carriers for agri-chemicals. Fuller's earth is also used as a drying agent in blending liquid and dry fertilizers prior to application.
Sales and Distribution
In 1995, the top two customers accounted for approximately 9% of the Company's mineral sales, and the top five customers accounted for approximately 16% of such sales. Products are sold domestically and internationally to approximately 3,700 customers.
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 at strategic locations.
Most of its 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 well drilling industry are primarily made directly to oil well drilling mud service companies, both under the Company's tradename and under private label. Because bentonite is a major component of drilling muds, two service companies have captive bentonite operations. The Company's potential market is, therefore, generally limited to those oil well service organizations which are not vertically integrated, or do not have long-term supply arrangements with other 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
Bentonite. The Company is one of the largest producers of bentonite products in the United States. There are at least four other major domestic producers of sodium bentonite and at least one other major domestic producer of calcium bentonite. Two of the domestic producers are companies primarily in other lines of business and have substantially greater financial resources than the Company. There also is substantial global competition. The Company's bentonite processing plants in the United Kingdom and Australia compete with a total of six U.K. and Australian processors. Competition in both the Company's domestic and international markets is essentially a matter of product quality, price, delivery, service and technical support, and it historically has been very vigorous.
Fuller's Earth. There are approximately ten major competitors in the United States, some of which are larger and have substantially greater financial resources than the Company. Price, service, product quality and geographical proximity to the market are the principal methods of competition in the Company's markets for fuller's earth.
Seasonality
Although business activities in certain of the industries in which the Company's mineral products are sold (such as well drilling) are subject to factors such as weather conditions, the Company does not consider its mineral business as a whole to be seasonal.
ENVIRONMENTAL
Principal Products and Markets
Through its wholly owned subsidiary, Colloid Environmental Technologies Company (CETCO), the Company sells sodium bentonite, products containing sodium bentonite and various other products and equipment for use in environmental and construction applications.
CETCO sells bentonite, and its geosynthetic clay liner products under the BENTOMAT and CLAYMAX trade names, for lining and capping landfills and for containment in tank farms, leach pads, waste stabilization lagoons and decorative ponds.
The Company's VOLCLAY Waterproofing System is sold to the non-residential construction industry. This line includes a product sold under the registered trade name VOLCLAY PANELS consisting of biodegradable cardboard panels filled with sodium bentonite installed to prevent leakage through underground foundation walls. A waterproofing liner product with the trade name VOLTEX, a joint sealant product with the trade name WATERSTOP-RX and a waterproofing membrane for concrete split slabs and plaza areas sold under the trade name VOLCLAY SWELLTITE, round out the principal components of the product line.
CETCO sells elastomeric urethane coatings for use in vehicular traffic decks, roofs, balconies and pedestrian walkways. The products, sold under the trade name ACCOGUARD, are among the more environmentally friendly primers and coatings available to the construction industry.
CETCO's drilling products are used to install monitoring wells and water wells, rehabilitate existing water wells and seal abandoned exploration drill holes. VOLCLAY GROUT, BENTOGROUT and VOLCLAY Tablets are among the trade names for products used in these applications.
Bentonite-based flocculents 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, RM10 and SORBOND trade names.
CETCO also specializes in providing absorption equipment and services to the environmental remediation industry, water treatment systems employing dissolved air flotation technology and activated carbon purification systems for the beverage and municipal water treatment industries. Its operations include a fully equipped engineering and fabrication facility for producing pressure vessels used in filtration applications. In addition, a network of regional service centers provides services and distribution to support markets such as remediation of petroleum-contaminated groundwater. The Company acquired a carbon regeneration facility during 1995, allowing for the regeneration and reuse of spent carbon obtained from its service centers.
Competition
CETCO has four principal competitors in the geosynthetic clay liner market. The construction and wastewater treatment product lines are niche businesses which compete primarily with alternative technologies. The service center remediation business has three major competitors, one of which is substantially larger and with greater resources. The groundwater monitoring, well drilling and sealants products compete with the Company's traditional rivals in the sodium bentonite business. Competition is based on product quality, service, price, technical support and availability of product. Historically, the competition has been very vigorous.
Sales and Distribution
In 1995, no customer accounted for more than 5% of environmental sales. CETCO products are sold domestically and internationally. CETCO sells most of its products through independent distributors and commissioned representatives. Contract remediation work is done on a direct basis working with consulting engineers engaged by the customers.
CETCO employs technically oriented marketing personnel to support its network of distributors and representatives. In the service center business, salespersons develop business in the regional markets to supplement contract remediation work performed for national accounts.
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 April through October. As a result, the Company considers this segment to be seasonal.
Research and Development
The minerals and environmental segments share research and laboratory facilities. Both CETCO and the U.K. minerals operation have independent research capabilities. Technological developments are shared between the companies, subject to license agreements where appropriate.
Mineral Reserves
Both the mineral and environmental segments have sodium bentonite reserves and processing plants. The discussion of mineral reserves which follows applies to both units.
MINERALS/ENVIRONMENTAL COMMON OPERATIONAL FUNCTIONS
Mineral Reserves
The Company has reserves of sodium and calcium bentonite at various locations in Wyoming, South Dakota, Montana, Nevada and Alabama, and reserves of fuller's earth in Tennessee and Illinois. At 1995 consumption rates, based on internal estimates, the Company believes that its proven reserves of commercially usable sodium bentonite will be adequate for approximately 30 years (although reserves for certain specialty uses differ significantly from this 30-year period) and that its proven reserves of calcium bentonite and fuller's earth will be adequate for approximately 20 years and in excess of 40 years, respectively. While the Company, based upon its experience, believes that its reserve estimates are reasonable and its title and mining rights to its reserves are valid, the Company has not obtained any independent verification of such reserve estimates or such title or mining rights. The Company owns or controls the properties on which its reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of the Company's bentonite reserves are owned. All of the properties on which the Company's reserves are located are either physically accessible for the purposes of mining and hauling, or the cost of obtaining physical access would not be material.
Of the total reserves, approximately 20% are located on unpatented mining claims owned or leased by the Company, on which the Company has the right to undertake regular mining activity. To retain possessory rights, a fee of $100 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. The Company believes that the unpatented mining claims which 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 as well as 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's fuller's earth reserves are both owned and leased. The loss of any of the leased reserves could materially decrease the Company's reserves of fuller's earth, but it is believed that alternative economical reserves could be developed.
The Company maintains a continuous program of 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 the obtaining of necessary state and federal mining permits.
The following table shows a summary of minerals sold by the Company for the last five years in short tons:
The Company estimates that available supplies of other materials utilized in its mineral business are sufficient to meet its production requirements for the foreseeable future.
Mining and Processing
Bentonite. Bentonite is surface mined, generally with large earthmoving scrapers, and then loaded into trucks and off-highway haul wagons for movement to the 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 processing plants generally maintain stock piles of unprocessed clay of 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 shipment in bulk. Virtually all production is shipped as processed, rather than stored for inventory.
Fuller's Earth. Fuller's earth is also surface mined using a combination of scrapers, dozers and loaders. Crude clay is then loaded into dump trucks and hauled to the processing plant where it is dried or calcined, crushed and screened. Inventories of unprocessed clay generally are no more than a two-week supply. Mining is thus performed on a year-round basis.
Product Development and Patents
The Company works actively with customers in each of its major markets in order to develop commercial applications of specialized grades of bentonite, and it maintains a bentonite research center and laboratory testing facility adjacent to its corporate headquarters as well as one in the United Kingdom When a need for a product which will accomplish a particular goal is perceived, the Company will work to develop the product, research its marketability and study the feasibility of its production. The Company will also continue its practice of co-developing products with customers or others as new 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.
Regulation and Environmental
The Company believes it is in material compliance with applicable regulations now in effect with respect to surface mining. Since reclamation of exhausted mining sites has been a regular part of the Company's surface mining operations for the past 27 years, maintaining compliance with current regulations has not had a material effect on its mining costs. The costs of reclamation 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 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 non-compliance. 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 or enforcement policies or 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.
ABSORBENT POLYMERS
Since the early 1970s, the Company has utilized a technique called modified bulk polymerization ("MBP") to manufacture water soluble polymers for the oil well drilling industry. This technique has been modified to produce superabsorbent polymers ("SAP"), a category of polymers known for its extremely high water absorbency. Chemdal Corporation was formed in 1986 to manufacture and market absorbent polymers, with primary emphasis on SAP. To date, the Company's sales of SAP have been almost exclusively for use as an absorbent in personal care products, primarily disposable baby diapers. The Company produces SAP at its U.S. facility with an annual capacity of 70,000 tons, and at its U.K. facility through Chemdal Limited, with an annual capacity of 40,000 tons.
Demand for the Company's products in the United States has grown significantly in recent years as the amount of SAP used in new diaper designs has increased. SAP is more absorbent than the fluff pulp used in traditional disposable diapers. The use of SAP in diapers allows for a thinner diaper that occupies less shelf space in stores and less landfill space. SAP also helps to hold moisture inside the diaper, thereby causing less irritation to the wearer's skin and reducing leakage. Based upon the Company's expectations regarding consumer and retail preferences, the Company believes that SAP will continue to be used in new diaper designs. While no assurance can be given that markets in developing countries will follow the trends of developed countries, the Company also believes that disposable diapers containing increasing amounts of SAP will gain more acceptance in developing countries as per capita incomes in those countries rise.
Principal Products and Markets
The Company's SAP is primarily marketed under the trade names ARIDALLAE and ASAPAE. To date, the Company's customers have been primarily private label and national brand diaper manufacturers. The Company believes that this segment of the diaper market has grown faster than the brand name segment, which currently accounts for the majority of that market. During 1995, the Company began selling to manufacturers of brand name personal care products and is seeking to increase its sales to that segment of the market.
Sales and Distribution
The Company sells SAP to the personal care market in the United States on a direct basis and, in other countries, both on a direct basis and through distributors. The Company expects to rely increasingly on a direct sales approach in the personal care market. The Company's direct sales efforts employ a team approach that includes both technical and marketing representatives. In 1995, the top two customers accounted for approximately 45% of the Company's polymer sales, and the top five customers accounted for approximately 58% of such sales.
Research and Development
The Company continually seeks to improve the performance of its absorbent polymers. It also intends to pursue additional applications for its absorbent polymers in other markets either directly, or indirectly through marketing or distribution arrangements. Polymers also have applications in water treatment and in cosmetics, and acrylic-based polymers can be used in the newer, more concentrated detergents which use smaller packaging.
The Company owns several patents relating to its MBP process developed in the 1970s, and to modifications of its MBP process developed in the 1980s which relate to its SAP manufacturing process. The patents on the MBP process have begun to expire. The patents relating to the SAP modifications thereto expire at various times commencing in 2002.
The Company follows the practice of obtaining patents on new developments whenever reasonably practicable. The Company also relies on unpatented know-how, trade secrets and improvements in connection with its SAP manufacturing process. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to or disclose the Company's trade secrets, or that the Company can meaningfully protect its rights to its unpatented trade secrets.
Raw Materials
The process used by the Company to produce SAP primarily uses acrylic acid and, to a lesser extent, potassium and sodium alkalies and catalysts. The Company's polymer operations are supplied by three major producers of acrylic acid. The Company has been able to obtain adequate supplies of acrylic acid to meet its production requirements to date.
The Company knows of four acrylic acid suppliers in the United States, three in Europe and four in the Far East. The Company is aware that at least five of these suppliers manufacture SAP and, therefore, compete with the Company in this market.
Potassium and sodium alkalies are available on a commercial basis worldwide with no meaningful limitations on availability. Catalysts are available from a small number of high-technology chemical manufacturers; however, the Company does not anticipate any difficulties in obtaining catalysts.
Competition
The Company believes that there are approximately five polymer manufacturers and several importers that compete with its U.S. operation, several of which have substantially greater resources than the Company. The Company's U.K. operation competes with a total of approximately seven producers and several importers. Only one producer has substantially more production capacity and several producers have greater resources than the Company. Further, several of these competitors are vertically integrated and produce acrylic acid, the primary cost component of SAP. The competition in both the Company's domestic and international markets is primarily a matter of product quality and price, and it historically has been very vigorous. The Company believes that its polymer manufacturing process has enabled it to add polymer production capacity at a lower capital investment cost than that required by other processes currently in widespread commercial use.
Regulation and Environmental
The Company's production process for SAP consumes virtually all chemicals and other raw materials used in the process. Virtually all materials which are not consumed by the end product are recycled through the process. The Company's polymer plants, therefore, generate a minimal amount of chemical waste.
The handling of dried polymer is part of the production process, and, because this generates dust, the Company's polymer plants must meet clean air standards. The Company's polymer plants are equipped with dust collection systems, and the Company believes that it is in material compliance with applicable state and federal clean air regulations. The Company's absorbent polymer business is 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 non-compliance. 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 or enforcement policies or 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 its own products in package and bulk form throughout the continental United States. Through its transportation operations, the Company is better able to control costs, maintain delivery schedules and assure equipment availability. 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 1995, approximately 74% of the revenues of this segment involved the Company's products.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 35% of the Company's 1995 net sales were to customers in approximately 60 countries other than the United States. To enhance its overseas market penetration, the Company maintains a mineral processing plant in the United Kingdom A processing plant, 60% owned by the Company, operates in Australia, as well as a blending plant in Canada. Through a joint venture, the Company also has the capability to process minerals in Mexico. Chartered vessels deliver large quantities of the Company's bulk, dried sodium bentonite to the plants in the United Kingdom and Australia, where it is processed and mixed with other clays and distributed throughout Europe and Australia. The Company's U.S. bentonite is also shipped in bulk to Japan. The Company also maintains a worldwide network of independent dealers, distributors and representatives.
The Company produces absorbent polymers at its U.S. and U.K. plants, and serves markets in Western Europe, South America, Asia and the Middle East.
The Company's international operations are subject to the usual risks of doing business abroad, such as currency devaluations, restrictions on the transfer of funds and import and export duties. The Company, to date, has not been materially affected by any of these risks.
See Note 2 of the Company's Notes to Consolidated Financial Statements included elsewhere herein, which Note is incorporated by reference for sales attributed to foreign operations and export sales from the United States.
EMPLOYEES
As of December 31, 1995, the Company employed 1,375 persons, 241 of whom were employed overseas. At December 31, 1995, there were approximately 751, 289, 261 and 24 persons employed in the Company's minerals, absorbent polymers, environmental and transportation segments, respectively, along with 50 corporate employees. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Approximately 187 of the Company's employees in the United States and approximately 33 of the Company's employees in the United Kingdom are represented by six labor unions, which have entered into separate collective bargaining agreements with the Company. Employee relations are considered good.
Item 2.
Item 2. Properties
The Company and its subsidiaries operate the following principal plants, mines and other facilities, all of which are owned, except as noted:
Item 3.
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, if any, to be significant.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None. Executive Officers of Registrant
All 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. All directors are elected by the stockholders for a three-year term or until their respective successors are elected and shall have qualified.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Common Stock is traded on The Nasdaq Stock Market under the symbol ACOL. The following table sets forth, for the periods indicated, the high and low sale prices of the Common Stock, as reported by The Nasdaq Stock Market, and cash dividends declared per share. Prices and cash dividends have been adjusted to reflect three-for-two and two-for-one stock dividends paid in January 1993 and June 1993, respectively.
The Company has paid cash dividends every year for over 58 years. The Company intends to continue to pay cash dividends on its Common Stock, but the payment of dividends and the amount and timing of such dividends will depend on the Company's earnings, capital requirements, financial condition and other factors deemed relevant by the Company's Board of Directors.
Item 6.
Item 6. Selected Financial Data
The following is selected financial data for the Company and its subsidiaries for the five years ended December 31, 1995. Per share amounts have been adjusted to reflect a two-for-one stock split and a three-for-two stock split effected in the nature of stock dividends in June 1993 and January 1993, respectively. All per share calculations are fully diluted, based on weighted average number of common and common equivalent shares outstanding during the year.
SUMMARY OF OPERATIONS (Dollars in thousands, except per share amounts)
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Financial Condition
At December 31, 1995, the Company had outstanding debt of $121.1 million (including both long- and short-term debt) and cash and cash equivalents of $1.9 million, compared with $75.0 million in debt and $10.4 million in cash and cash equivalents at December 31, 1994. The long-term debt represented 42.9% of total capitalization at December 31, 1995, compared with 33.3% at December 31, 1994.
The Company had a current ratio of 3.52 to 1 on December 31, 1995, with approximately $90.5 million in working capital, compared with 2.97 to 1 and $72.1 million, respectively, at December 31, 1994. The $18.4 million increase (25.5%) in working capital resulted from sales growth of 31.0%, and included increases in accounts receivable of $15.8 million (30.2%), inventories of $6.9 million (17.1%) and prepaid expenses of $3.1 million offset by an $8.5 million reduction in cash balances. Prepaid expenses include approximately $2.0 million in income taxes, which will be applied toward 1996 estimated tax payments. The cash balances were lower, as proceeds of the October 1994 private debt placement were invested in capital expenditures.
On September 25, 1995, the Company increased its revolving credit facility from $50 million to $100 million and extended its term from October 1997 to October 2000. The Company had $43.2 million in unused, committed credit lines at December 31, 1995.
The Company currently anticipates capital expenditures of approximately $40 million for 1996. Capacity expansion of the U.K. polymer operation and a modification of existing U.S. polymer capacity are anticipated; however, no acquisitions are included in the estimate.
The current indicated annual dividend rate is $.28 per share. If the rate remains constant and the Board of Directors continues to declare dividends, the dividend payments will be approximately $5.4 million in 1996, compared with approximately $5.0 million in 1995.
Management believes that the Company has adequate resources to fund the capital expenditures discussed above, the dividend payments and anticipated increases in working capital requirements through its existing, committed credit lines, cash balances and operating cash flow. In addition to the capital expenditures which have been authorized by the Board of Directors, management continues to explore growth opportunities in the environmental and minerals markets, as well as further capacity expansion in the polymer segment.
Results of Operations for the Three Years Ended December 31, 1995
Net sales increased by $82.2 million, or 31.0% , from 1994 to 1995, and by $46.3 million, or 21.1%, from 1993 to 1994. Operating profits increased by $8.4 million, or 35.0%, from 1994 to 1995, and by $2.7 million, or 12.6%, from 1993 to 1994. A review of sales, gross profit, general, selling and administrative expenses, and operating profit by segment follows:
Minerals
Sales increased in the durable goods and consumables sectors from 1993 to 1994, both domestically and overseas, as a result of an improved economy, higher U.K. sales volume, $2.3 million higher royalty income and a full year of sales to the agricultural carrier market. Sales decreased domestically during 1995 as royalties declined by approximately $3.8 million, as anticipated, and the principal customer for clay carrier products switched to a local, non-clay alternative at mid-year. Construction and environmental products contributed to the U.K. operation's sales growth, as did favorable translation exchange rates.
Gross profit margins for 1995 declined from those of 1994 by approximately 2.3%, compared with a 12.0% improvement from 1993 to 1994. The 1993 to 1994 gross profit margin improvement was primarily related to the increased royalties, whereas the decline in gross profit margin from 1994 to 1995 was not as severe as would have been anticipated with the royalty decline, largely due to price increases in certain markets.
General, selling and administrative expenses for 1995 increased by $3.2 million, or 23.2%, over 1994, which were 7.7% higher than the 1993 level. Higher costs for research and development, and management information systems contributed to the higher general, selling and administrative expense increase. A more precise division of expenses shared between minerals and corporate was accomplished during 1995 than for 1994, causing a higher percentage increase.
The lower royalty level experienced in 1995 is anticipated to continue, as many of the agreements have been converted to fully paid licenses. Cat litter volume continues to grow. The cat litter facilities added during 1995, however, have yet to be fully utilized. This temporary overcapacity, plus lower business volumes which were experienced in other markets during the last months of 1995, are likely to depress operating margins in the near-term.
Absorbent Polymers
Sales of absorbent polymers for 1995 increased by 106.1% over 1994 levels on a unit sales volume increase of 116.1%. This compares to a 13.1% sales increase from 1993 to 1994 on a unit volume increase of 15.9%. The unit volume increase in 1995 was largely attributable to the growth in European market share.
Gross profit margins declined 13.9% from 1993 to 1994 as capacity expanded from 30,000 metric tons to 80,000 metric tons. Unit sales volume increased only 16%. Gross margins declined a further 18.0% in 1995 as the cost of raw materials, principally acrylic acid, increased, and unit selling prices declined.
The general, selling and administrative expense increase from 1993 to 1994 was directed to the marketing and administrative infrastructure to accommodate the growth which occurred from 1994 to 1995.
Despite lower unit selling prices and higher raw material costs, the operating profit margin improved by 2.9% from 1994 to 1995 because of the increase in volume.
The Company aggressively expanded its capacity from 1993 to 1995 to produce absorbent polymers. The Company began the three-year period with worldwide capacity of 20,000 metric tons, and ended with 110,000 metric tons. The Company's production capability is presently among the largest in the world. The expansions were undertaken ahead of the industry demand curve. Fourth quarter 1995 capacity utilization was approximately 56%, thus allowing for greater output as demand increases. Depreciation on the most recent U.S. expansion of 30,000 metric tons will be calculated on the units-of-production basis until the third quarter of 1996. All other depreciation is calculated using the straight-line method.
Management anticipates lower average unit selling prices as larger volume customers are expected to account for a greater proportion of the sales. The average cost of acrylic acid is expected to be lower in 1996 than in 1995, however it is unknown whether the combination of lower acrylic costs and greater plant throughput will offset the expected price decline. Management does not anticipate a return of operating profit margins to the 20% level experienced during 1993.
Environmental
Approximately 50% of the sales increase from 1994 to 1995 was attributable to acquisitions. A further 14% of the growth came from increased sales in international markets. Approximately 85% of the sales growth from 1993 to 1994 came from the combination of acquisitions and increased sales of BentomatAE environmental liner products.
Gross profit margins in 1995 improved by 13.3%. Inventory charges and changes in distribution during 1994 accounted for the difference between 1994 and 1995. Increased sales of lower margin products and the non-recurring charges accounted for the 24.1% gross margin decline from 1993 to 1994.
General, selling and administrative expenses increased from 1993 to 1994, primarily as a result of increased staff associated with the acquisitions and increased staffing in marketing, including the establishment of an international marketing department. The 1995 increase reflected further expansion of the international marketing group and additional staff associated with the Claymax acquisition.
Transportation
Increased brokerage of cat litter and environmental shipments fueled the growth in transportation revenues from 1993 to 1994. The conversion of shipments of bentonite used in the manufacturing of liner products from truck to rail offset the further revenue gains made in the shipment of cat litter products during 1995. Gross profit margins have benefitted from the high volume levels, as well as greater truck availability during the three-year period.
Corporate
Corporate costs include management information systems, human resources, investor relations and corporate communications, finance, purchasing, research costs for new markets and corporate governance costs.
During 1994, the Company installed a new management information system and significantly increased research and development activities. These expenditures continued into 1995. The 1995 expenses reflected a more precise split of the costs previously shared by minerals and corporate.
The Company is actively engaged in research and development efforts to create new applications for its reserves of bentonite. The Company has formed a wholly-owned subsidiary, Nanocor, Inc., to capitalize on its research and development progress in bentonite-based nanocomposites. When incorporated into plastics, bentonite-based nanocomposites can produce material with significantly improved properties that encompass a variety of commercial applications. Nanocor's technologies are still in the developmental stage, but management feels that these products have the potential to become a significant part of the Company's future growth.
An incremental increase in research and development costs of approximately $2 million is expected for 1996 as Nanocor, Inc. expands its product development efforts. All costs associated with Nanocor, Inc. will be carried in corporate for 1996.
Net interest expense
Net interest expense increased by $4.4 million from 1994 to 1995 as a result of higher borrowing levels primarily associated with capital expenditures and acquisitions. Net interest expense for 1994 was $.7 million lower than in 1993 as a result of higher levels of capitalized interest.
Other income (expense)
Other income for 1995 included investment grants of approximately $.5 million and a $.6 million gain related to the cancellation of an interest rate swap, compared with $.5 million of investment grants in 1994 and $.5 million in recovered defense costs in 1993.
Income taxes
The income tax rate for 1995 was 33.8% compared with 30.8% in 1994 and 29.7% in 1993. The estimated effective tax rate for 1996 is 36%.
Earnings Per Share
Earnings per share were calculated using the weighted average number of shares, including common stock equivalents, outstanding during the year. Stock options issued to key employees and directors are considered common stock equivalents. The 1993 weighted average shares outstanding were approximately 17.2 million shares compared with approximately 19.5 million shares and 19.7 million shares in 1994 and 1995, respectively. An equity offering of 3.5 million shares was completed in October 1993, accounting for most of the difference in the shares outstanding between the periods.
Item 8.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Financial Statement Schedules on Page. Such Financial Statements and Schedules are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The table below lists the names and ages of all directors and nominees of the Company, and all positions each person holds with the Company.
Board of Directors of the Registrant
Arthur Brown, 55, (2) Chairman,President and Chief Executive Officer of Hecla Mining Company. Director since 1990.
Robert E. Driscoll, III, 57, (2, 5) Former Dean and Professor of Law, University of South Dakota. Director since 1985.
Raymond A. Foos, 67, (2, 3) Former Chairman of the Board, President and Chief Executive Officer of Brush Wellman, Inc. (manufacturer of beryllium and specialty materials). Director since 1981.
John Hughes, 53, (1) President and Chief Executive Officer, AMCOL International Corporation. Director since 1984.
Robert C. Humphrey, 77, (1, 3, 4) Retired Chairman of the Board, NBD Bank Evanston, N.A. Director since 1977, except for a three-month period in 1989.
Jay D. Proops, 54, (1, 3) Private investor and former Vice Chairman and co-founder of The Vigoro Corporation. Director since June 1995.
C. Eugene Ray, 63, (1, 2, 3, 4) Chairman of the Board since 1988. Former Executive Vice President - Finance of Signode Industries, Inc. (manufacturer of industrial strapping products). Director since 1981.
Clarence O. Redman, 53, (1, 5) Partner and Chief Executive Officer of the law firm of Keck, Mahin & Cate. Secretary of the Company since 1982. Director since 1989.
Paul G. Shelton, 46, (1) Senior Vice President - Chief Financial Officer, AMCOL International Corporation. Director since 1988.
Dale E. Stahl, 48, (1, 3) President and Chief Operating Officer of Gaylord Container Corporation. Director since June 1995.
Paul C. Weaver, 33, (1, 2) Senior Corporate Account Manager for Nielsen Marketing Research. Director since May 1995.
(1) Member of Executive Committee of the Board of Directors (2) Member of Audit Committee (3) Member of Compensation Committee (4) Member of Nominating Committee (5) Member of Option Committee
Additional information regarding the directors of the Company is included under the caption "Election of Directors", "Information Concerning Members of the Board" and "Compliance with Section 16(a) of the Securities Exchange Act." in the Company's proxy statement to be dated on or about April 8, 1996, and is incorporated herein by reference. Information regarding executive officers of the Company is included under a separate caption in Part I hereof, and is incorporated herein by reference, in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
Item 11.
Item 11. Executive Compensation
Information regarding the above is included under the caption "Compensation and Other Transactions with Management" in the Company's proxy statement to be dated on or about April 8, 1996, and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding the above is included under the caption "Security Ownership" in the Company's proxy statement to be dated on or about April 8, 1996, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information regarding the above is included under the caption "Compensation and Other Transactions with Management" in the Company's proxy statement to be dated on or about April 8, 1996, and is incorporated herein by reference.
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. See Index to Financial Statements and 2. Financial Statement Schedules on Page. Such Financial Statements and Schedules are incorporated herein by reference. 3. See Index to Exhibits immediately following the signature page.
(b) None.
(c) See Index to Exhibits immediately following the signature page.
(d) See Index to Financial Statements and Financial Statement Schedules on Page.
Item 14(a) Index to Financial Statements and Financial Statement Schedules
All other schedules called for under Regulation S-X are not submitted because they are not applicable or not required or because the required information is not material or is included in the financial statements or notes thereto.
Independent Auditors' Report
The Board of Directors and Stockholders AMCOL International Corporation:
We have audited the consolidated financial statements of AMCOL International Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AMCOL International Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois March 8, 1996
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollars in thousands)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies
Company Operations
AMCOL International Corporation (the Company) may be divided into three principal categories of operations; minerals, absorbent polymers and environmental. The Company also operates a transportation business primarily for delivery of its own products. The Company's revenues are derived 44% from the minerals operation, 35% from absorbent polymers, 15% from environmental and 6% from transportation operations. The Company's sales were approximately 65% domestic and 35% overseas.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. All subsidiaries are wholly-owned except for one of the Australian subsidiaries, which is 60% owned by the Company, and a 49% interest in a Mexican subsidiary, which is accounted for at cost. All material intercompany balances and transactions, including profits on inventories, have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Translation of Foreign Currencies
The accounts and transactions of subsidiaries located outside of the United States are translated into U.S. dollars at rates of exchange in accordance with Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation." The assets and liabilities of these subsidiaries are translated at the rate of exchange at the balance sheet date. The statements of operations are translated at the weighted average monthly rate. Foreign exchange translation adjustments are accumulated as a separate component of stockholders' equity while realized exchange gains or losses are included in income.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) or moving average methods. During 1995, in order to better match revenues and expenses, the Company adopted the FIFO method for certain inventories that had previously used the last-in, last-out (LIFO) method for determining cost. The Company has applied this change in method retroactively to January 1, 1991, which resulted in an increase in retained earnings of $1,753. The effect on the statement of operations was immaterial.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves are carried at cost. Depreciation is computed using the straight-line method for substantially all of the assets. Certain other assets, primarily field equipment are depreciated on the units-of-production method. Mineral rights and reserves are depleted using the units-of-production method.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill is being amortized on the straight-line method over periods of 15 to 40 years. Other intangibles, including trademarks and noncompete agreements, are amortized on the straight-line method over periods of up to ten years.
Income Taxes
The Company and its U.S. subsidiaries file a consolidated tax return. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect for the year in which those temporary differences are expected to be recovered or settled.
Exploration Costs and Advance Mining
Exploration costs are expensed as incurred. Costs incurred in removing overburden and mining bentonite are capitalized as advance mining costs until the bentonite from such mining area is transported to the plant site, at which point the costs are included in crude bentonite stockpile inventory.
Research and Development
Research and development costs, included in general, selling and administrative expenses, were approximately $4,801, $2,353, and $1,764 for the years ended December 31, 1995, 1994, and 1993.
Earnings Per Share
Earnings per share are computed by dividing net income by the weighted average of common shares outstanding after consideration of the dilutive effect of stock options outstanding at the end of each period. The weighted average number of common and common equivalent shares outstanding was 19,679,480 for 1995, 19,486,520 for 1994, and 17,223,854 for 1993.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(1) Summary of Significant Accounting Policies (Continued)
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly-liquid investments with original maturities of three months or less as cash equivalents.
Reclassification
Certain items in the 1994 and 1993 consolidated financial statements have been reclassified to comply with the consolidated financial statements presentation for 1995.
(2) Business Segment and Geographic Area Information
The Company operates in three major industry segments--minerals, absorbent polymers and environmental, and 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 absorbent polymers segment produces and distributes superabsorbent polymers primarily for use in 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.
Intersegment sales are insignificant. Operating profit is defined as sales and other income directly related to a segment's operations, less operating expenses, which do not include interest costs.
Identifiable assets by segments are those assets used in the Company's operations in that segment. Corporate assets are primarily cash and cash equivalents, corporate leasehold improvements and miscellaneous equipment.
Export sales included in the United States were approximately $28,691, $17,430, and $12,206 for the years ended December 31, 1995, 1994, and 1993. One customer accounted for approximately 11% of sales in 1995.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(2) Business Segment and Geographic Area Information (Continued)
The following summaries set forth certain financial information by business segment and geographic area for the years ended December 31, 1995, 1994, and 1993.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(2) Business Segment and Geographic Area Information (Continued)
(3) Inventories
Inventories consisted of:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(4) Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves consisted of the following:
Depreciation and depletion were charged to income as follows:
(5) Income Taxes
The components of the provision for domestic and foreign income tax expense for the years ended December 31, 1995, 1994 and 1993 consist of:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(5) Income Taxes (Continued)
The components of the deferred tax assets and liabilities as of December 31, 1995 and 1994 are as follows:
The following analysis reconciles the statutory Federal income tax rate to the effective tax rates:
(6) Long-term Debt
Long-term debt consisted of the following:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(6) Long-term Debt (Continued)
The Company has a committed $100,000 revolving credit agreement which matures October 31, 2000, with an option to extend for three one-year periods. As of December 31, 1995, there was $43,167 available in unused lines of credit. The revolving credit note is a multi-currency agreement which allows the Company to borrow at various interest rates including, but not limited to, prime and an adjusted LIBOR rate plus .375% to .75% depending upon debt to capitalization ratios and the amount of the credit line used.
The Industrial Revenue Bond outstanding at December 31, 1995, is payable in equal semi-annual installments of $117 until the year 2000. The Aberdeen, Mississippi, bentonite operations of the Company are pledged as collateral. The carrying value of the pledged assets at December 31, 1995 was $1,956.
Maturities of long-term debt at December 31, 1995 are as follows:
The estimated fair value of the term notes above at December 31, 1995, was $65,364 based on discounting future cash payments at current market interest rates for loans with similar terms and maturities.
All loan agreements include covenants which require the maintenance of specific minimum amounts of working capital, tangible net worth and financial ratios and limit additional borrowings and guarantees. The Company is not required to maintain a compensating balance.
(7) Financial Instruments
The Company uses financial instruments, principally swaps, forward contracts and options, in its management of foreign currency and interest rate exposures. These contracts hedge transactions and balances for periods consistent with its committed exposures.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(7) Financial Instruments (Continued)
Realized and unrealized foreign exchange gains and losses are recognized and offset against foreign exchange gains or losses on the underlying exposures. The interest differential paid or received on swap agreements is recognized as an adjustment to interest. The Company had $25,000 interest rate swap in place at December 31, 1994. During June 1995, the swap was cancelled for a gain of $632. The gain was recorded as other income.
At December 31, 1995, the Company had $3,825 of forward exchange contracts outstanding. The fair value of these contracts and the Company's other financial instruments (except for term notes - see note (6)) approximates their carrying value.
(8) Leases
The Company leases certain railroad cars, trailers, computer software, office equipment, and office and plant facilities. Total rent expense under operating lease agreements was approximately $2,283, $1,920, and $1,721 in 1995, 1994, and 1993, respectively. Rent expense on railroad cars is offset by mileage earnings paid by the railroads of approximately $115, $124, and $137 in 1995, 1994, and 1993, respectively.
Railroad cars and computer software under capital leases are included in machinery and equipment as follows:
The following is a schedule of future minimum lease payments for the capital leases and for operating leases (with initial terms in excess of one year) as of December 31, 1995:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(9) Employee Benefit Plans
The Company has noncontributory pension plans covering substantially all of its domestic employees. The Company's funding policy is to contribute annually the maximum amount calculated using the actuarially determined entry age normal method that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future. The plan is fully funded for tax purposes.
Pension cost in 1995, 1994, and 1993 was comprised of:
The following table summarizes the funded status and amounts recognized in the Company's balance sheet at December 31, 1995 and 1994:
The Company's pension benefit plan was valued as of October 1, 1995 and 1994, respectively. Approximately 94% of the plan assets are invested in common stocks, corporate bonds and notes, and guaranteed income contracts purchased from insurance companies. The remainder of the plan assets are invested in cash and a real estate trust.
The weighted average discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% in 1995 and 8.0% in 1994, while the rate of increase in future compensation levels was 5.5% in 1995 and 6.0% in 1994. The expected long-term rate of return on plan assets was 9.0% in 1995 and 9.0% in 1994.
The Company also has a savings plan for its domestic personnel. The Company has contributed an amount equal to an employee's contribution up to a maximum of 4% of the employee's annual earnings. Company contributions are made using Company stock purchased on the open market. Company contributions under the savings plan were $985 in 1995, $963 in 1994, and $854 in 1993.
The foreign pension plans, not subject to ERISA, are funded using individual annuity contracts and therefore, are not included in the information noted above.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(10) Stockholders' Equity
On August 23, 1993, the Board of Directors authorized up to 2,500,000 shares of common stock, $.01 par value per share, to be offered and sold pursuant to a public offering. The public offering was completed on October 27, 1993. The par value for these additional shares was increased by $25 and additional paid-in capital was increased by $58,808, the total of which represents the net proceeds from the sale of 2,500,000 shares of common stock.
On May 10, 1993, the stockholders of AMCOL International Corporation approved an amendment to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of common stock of the Company from 12 million to 50 million. The stockholders also approved an amendment to change the par value of the common stock from $1.00 per share to $0.01 per share. Additional paid-in capital was increased and common stock reduced by $9,328 for the change in the par value of the common stock.
On May 10, 1993, the Board of Directors declared a two-for-one stock split effected in the nature of a stock dividend to stockholders of record on June 8, 1993, which was paid June 23, 1993. The par value of these additional shares was capitalized by a transfer of $94 from retained earnings to common stock.
All current and prior-year common share and per share disclosures have been restated to reflect the stock dividends.
(11) Stock Option Plans
1983 Incentive Stock Option Plan
The Company reserved 1,800,000 shares of its common stock for issuance of incentive stock options to its officers and key employees. Options awarded under this plan, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value at the time of grant. Options awarded under the plan vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested. Options are exercisable as they vest and expire ten years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
This plan expired during 1993, though options which were granted prior to its expiration continue to be valid until the individual option grants expire.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(11) Stock Option Plans (Continued)
1993 Stock Plan
The Company reserved 840,000 shares of its common stock for issuance to its officers and key employees in the form of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and phantom stock. Different terms and conditions apply to each form of award made under the plan. To date, only incentive stock options have been awarded. Options awarded under this plan, which entitle the optionee to one share of common stock, may be exercised at a price equal to the fair market value at the time of grant. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until they are fully vested, unless a different vesting schedule is established by the Option Committee of the Board of Directors on the date of grant. Options are exercisable as they vest and expire ten years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
1987 Nonqualified Stock Option Plan
The Company reserved 340,000 shares of its common stock for issuance of nonqualified stock options to outside officers and directors, as well as key employees. The stock options are exercisable at a price per share which may be no less than the fair market value at the time of grant according to the vesting provisions of the plan. Options awarded under the plan generally vest 40% after two years and continue to vest at the rate of 20% per year for each year thereafter, until fully vested. Options are exercisable as they vest and expire ten years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts)
(12) Accrued Liabilities
(13) Quarterly Results (Unaudited)
Unaudited summarized results for each quarter in 1995 and 1994 are as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) (Dollars in thousands, except per share amounts
(13) Quarterly Results (Unaudited) (Continued)
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule II Valuation and Qualifying Accounts (Dollars in thousands)
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 1996
AMCOL INTERNATIONAL CORPORATION
By: /s/ John Hughes --------------------------------- John Hughes President; Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John Hughes March 28, 1996 - ---------------------------------------- John Hughes President; Chief Executive Officer and Director
/s/ Paul G. Shelton March 28, 1996 - ---------------------------------------- Paul G. Shelton Senior Vice President - Chief Financial Officer; Treasurer and Director
/s/ C. Eugene Ray March 28, 1996 - ---------------------------------------- C. Eugene Ray Director; Chairman of the Board
/s/ Jay D. Proops March 28, 1996
- ---------------------------------------- Jay D. Proops Director
/s/ Robert C. Humphrey March 28, 1996 - ---------------------------------------- Robert C. Humphrey Director
/s/ Robert E. Driscoll, III March 28, 1996 - ---------------------------------------- Robert E. Driscoll, III Director
/s/ Raymond A. Foos March 28, 1996 - ---------------------------------------- Raymond A. Foos Director
/s/ Clarence O. Redman March 28, 1996 - ---------------------------------------- Clarence O. Redman Director
/s/ Arthur Brown March 28, 1996 - ---------------------------------------- Arthur Brown Director
/s/ Dale E. Stahl March 28, 1996 - ---------------------------------------- Dale E. Stahl Director
/s/ Paul C. Weaver March 28, 1996 - ---------------------------------------- Paul C. Weaver Director
INDEX TO EXHIBITS