Item 1. Business
INTRODUCTION
AMCOL International Corporation was originally incorporated in South Dakota in 1924, reincorporated in Delaware in 1959, became publicly listed in 1987 on the NASDAQ, and moved to and remains listed on the New York Stock Exchange since 1998. Except as otherwise noted or indicated by context, the term “Company” refers to AMCOL International Corporation and its subsidiaries.
We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. We focus our research and development activities in areas where we can either leverage our current customer relationships and mineral reserves or enhance existing or related products and services.
We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Our minerals and materials segment mines, processes and distributes minerals and products with similar applications for use in various industrial and consumer markets, including metalcasting, pet care, laundry care, and drilling industries. Additionally, this segment develops and manufactures synthetic materials principally for personal care applications. Our environmental segment manufactures and distributes products and related services for use as moisture and vapor barriers in commercial construction, landfills and a variety of other industrial and commercial applications. Our oilfield services segment provides both onshore and offshore water treatment filtration, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and natural gas industry. Our transportation segment includes both a long-haul trucking business and a freight brokerage business for our domestic subsidiaries as well as third parties. Our corporate segment includes the elimination of intersegment shipping revenues as well as certain expenses associated with research and development, management, employee benefits and information technology activities for our Company.
Our primary mineral is bentonite and we have bentonite reserves located throughout the world. We also develop applications for other minerals, including chromite ore. Nicknamed the mineral of a thousand uses, bentonite has several unique characteristics including its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions.
We earn revenues from the sales of finished products, provision of services, rental of equipment, and charges for shipping goods and materials to customers. Revenues derived from services are primarily generated in our environmental, oilfield services, and transportation segments, the latter being purely service based.
The following table sets forth the percentage of our revenues generated from each segment for each of our last three fiscal years:
Net revenues, operating profit, assets, depreciation, depletion and amortization, capital expenditures and research and development expenditures attributable to each of our business segments are set forth in our Notes to Consolidated Financial Statements included later herein.
MINERALS AND MATERIALS SEGMENT
This segment conducts its business through wholly-owned subsidiaries and investments in affiliates and joint ventures throughout the world. Our principal products are marketed under various internationally registered trade names, including VOLCLAY®, PANTHER CREEK®, PREMIUM GEL®, ADDITROL®, and Hevi-Sand®.
Our principal mineral is bentonite. Commercially produced bentonite is a type of montmorillonite clay found in beds ranging in thickness from two to 50 feet beneath overburden of up to 60 feet. There are two basic types of bentonite, sodium bentonite and calcium bentonite, and each has different chemical and physical properties. Sodium bentonite is generally referred to as Western bentonite because it predominately exists in the Western United States, although sodium bentonites of lesser purity do exist outside the United States (“U.S.”). Calcium bentonite is sometimes referred to as Southern bentonite in the U.S. and as Fuller’s Earth outside the U.S. Calcium bentonites mined outside the U.S. are sometimes activated with sodium carbonate or similar compounds to produce properties similar to natural sodium bentonite.
We also own a chromite ore mine in South Africa. Chromite ore is located in seams within certain rock formations that can descend over 100 feet below ground. We are particularly interested in mining chromite ore that has physical properties suited for metalcasting applications.
Principal Products and Markets
Metalcasting. In the formation of sand molds for metalcastings, sand is bonded with minerals and various other additives to yield desired casting form and surface finish. Our products are sold in the foundry and casting industry to help customers reduce waste from metalcasting defects, improve the efficiency and recycling of sand blends in mold sand systems, and improve air quality by reducing volatile organic compound emissions. We employ a consultative sales process to sell custom-blended mineral and non-mineral products to strengthen sand molds for casting auto parts; farm and construction equipment; oil and gas production equipment; power generation turbine castings; and rail car components.
In the ferrous casting market, we specialize in blending bentonite of various grades by themselves or with mineral binders containing sodium bentonite, calcium bentonite, seacoal and other ingredients. We also have a line of formulated additives that introduce silicon and carbon in the melt phase of the casting process.
In the steel alloy casting market, we sell a chromite product with a particle size distribution specific to a customer’s needs. One of chromite’s better qualities is its ability to abstract heat. Thus, we market the product for use in making very large, high integrity, steel alloy castings where the chromite is better suited to withstand the high heat and pressure resulting from the significant amount of alloy poured in the casting. We market our chromite product under the trade name Hevi-Sand®.
Specialty Materials. Our specialty materials products are sold in markets with generally lower volume applications where our material acts as a performance additive. The following are the major markets for such mineral applications:
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Laundry Care. We supply high-grade, agglomerated bentonite and other mineral additives used in laundry care products. Bentonite performs as a softening agent in certain powdered-detergent formulations, and it can also act as a carrier for colorants and fragrances. Amongst other things, our laundry care products lower pollution by eliminating phosphates, reduce packaging requirements due to our agglomeration technology which results in a greater density particle, and can lower an end-user’s energy costs in cold wash applications.
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Personal Care. We manufacture adsorbent polymers and purified grades of bentonite ingredients for sale to manufacturers of personal skin care products. The adsorbent polymers are used to deliver high-value actives in skin-care products. Microsponge® and Poly-Pore® are the principal trade names under which these products are sold. Bentonite-based materials act as thickening, suspension and dispersion agent emollients.
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Paper Manufacturing. Bentonite is used to improve processing and waste control in manufacturing a broad range of printable paper surfaces.
Pet Products. We produce and market sodium bentonite-based scoopable (clumping), traditional and alternative cat litters as well as specialty pet products to grocery and drug stores, mass merchandisers, wholesale clubs and pet specialty stores throughout the U.S. Our scoopable products’ clump-forming capability traps urine, thereby reducing the waste of litter by allowing for easy removal of only the odor-producing elements from the litter box. Our products are marketed under various trade names.
Basic Minerals. We supply minerals in industrial applications where they are used as a component of the end product to the consumer. Our markets and applications include:
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Drilling Fluid Additives. Sodium bentonite and leonardite, a form of oxidized lignite which we mine and process 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. Our primary trademark for this application is the trade name PREMIUM GEL®.
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Other Industrial. We produce 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. We also supply grades of bentonite used for pellitizing other materials for ease of use. Examples of this application are the pelletizing of iron ore and livestock feed.
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Ferro Alloys. A by-product of our chromite processing operations for foundry products includes a chromite ore which has physical properties suited for use in producing ferro chrome. The ore generally needs to have a chromite content in excess of 42% to meet metallurgical grade specifications. Manufacturers of stainless steel are the primary users of ferro chrome.
Sales and Distribution
In 2010, the top eight customers of the minerals and materials segment accounted for approximately 32% of this segment’s sales worldwide. Approximately 62% of our sales in this segment are generated in the Americas. Metalcasting is our largest product line in the Americas and all of our pet products sales are in this region as well. Our sales in EMEA (Europe, Middle East and Africa) represent approximately 18% of segment sales and are principally to laundry care producers. The Asia-Pacific region represents approximately 20% of segment sales with metalcasting being our largest product line.
This segment sells minerals and materials not only to third party customers but also to other segments, principally our environmental segment. Bentonite is a key material included within several products in our environmental segment, most notably the lining technology products. In 2010, this segment sold approximately 10% of its tons to sister segments; these sales are not included in this segment’s revenues or our consolidated financial statements.
A large majority of our sales and distribution is conducted by our own personnel. We have established industry-specialized sales groups staffed with technically oriented salespersons serving each of our major markets. Certain businesses will have networks of distributors and representatives, including companies that warehouse products at strategic locations.
We believe our strong, global market position in the metalcasting industry is largely due to our technical service capabilities and our distribution network. We provide training courses and laboratory testing for customers who use our products in the metalcasting process. Our technical sales personnel provide expertise not only to educate our customers on the bentonite blend properties but also to aid them in producing castings efficiently and productively.
In pet products, we are primarily a private-label producer of cat litter and have three principal sites from which we package and distribute finished goods. Our transportation segment provides logistics services for the cat litter business, and is a key component of our capability in supplying customers on a national basis.
Serving certain specialty material markets requires considerable technical expertise. Serving the laundry care market requires an ability to not only supply cost-effective products and additives but also provide product development capabilities to adapt to our customers’ product requirements. We experience similar requirements for our personal care business, which makes use of several patents with various durations.
Our drilling fluid additives division markets products, including bentonite which is a major component of drilling fluids, under our own and private-label trade names. At least two drilling fluid service companies have captive bentonite operations and others are party to long-term bentonite supply agreements. The potential customers for our products, therefore, are generally limited to those service organizations that neither are vertically integrated nor have long-term supply arrangements with other bentonite producers.
Competition
We are one of the largest producers of bentonite products globally. There is substantial domestic and international competition, which is essentially a matter of product quality, price, logistics, service and technical support. There are several producers of sodium bentonite or sodium activated calcium bentonite throughout the world, some of which import into the U.S. market. There are also numerous major producers of calcium bentonite and various regional suppliers in the areas we serve. Some of our competitors, especially in the chromite sand market, are companies primarily in other lines of business with substantially greater financial resources than ours.
Seasonality
We do not consider our minerals and materials segment’s business to be seasonal in nature.
ENVIRONMENTAL SEGMENT
Principal Products and Markets
The business is principally conducted through wholly-owned subsidiaries and joint ventures throughout the world. Many of these companies utilize our CETCO® brand name. Our five principal markets are as follows:
Lining Technologies. We sell a variety of lining and other products to landfill, mining, and other construction markets for a variety of applications, most of which are directed to preserving or remediating environmental issues.
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Lining Technologies. We help customers protect ground water and soil through the sale of geosynthetic clay liner products containing bentonite. We market these products under the BENTOMAT® and CLAYMAX® trade names principally for lining and capping landfills, mine waste disposal sites, water and wastewater lagoons, secondary containments in tank farms, and other contaminated sites. We also provide associated geosynthetic materials for these applications, including geotextiles and drainage geocomposites.
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Remediation Technologies. Our remediation technologies group provides engineered solutions for challenging environmental site-remediation projects, usually with the goal of redeveloping contaminated industrial sites. Such as projects often involve contaminated sediment and soil capping, waste solidification and stabilization, water treatment, sludge dewatering, hazardous waste clean-up and engineered remedial barriers. Products offered in this business include Liquid Boot®, a liquid applied vapor barrier system; REACTIVE CORE-MAT™, an in-situ sediment capping material; ORGANOCLAY®, which absorbs organic containments; and QUIK-SOLID®, a super absorbent media.
Building Materials. We supply many roofing and waterproofing materials to the non-residential construction industry. This business’ products include VOLTEX®, a waterproofing composite comprised of two polypropylene geotextiles filled with sodium bentonite; ULTRASEAL®, an advanced membrane using a unique active polymer core; and COREFLEX®, featuring heat-welded seams for protection of critical infrastructure. In addition to these membrane materials, we also provide roofing products and a variety of sealants and other accessories required to create a functional waterproofing system.
Contracting Services. Our contracting services business provides geo-environmental solutions for a variety of construction projects. In the role of general or specialty contractor, this business develops value engineered solutions for waste containment, site remediation, civil and geotechnical construction, erosion control, waterproofing, and green roofs. This business operates in the commercial and environmental construction industries utilizing our own and third-party products.
Drilling Products. Our drilling products are used in environmental and geotechnical drilling applications, horizontal directional drilling, mineral exploration and foundation construction. The products are used to install monitoring wells, facilitate horizontal and water well drilling, and seal abandoned exploration drill holes. VOLCLAY GROUT™, HYDRAUL-EZ®, BENTOGROUT® and VOLCLAY TABLETS™ are among the trade names for products used in these applications. Ground source heat loop systems utilizing GEOTHERMAL GROUT™ represent a developing area for drilling products. We also offer a range of drilling products used in the excavation of foundations for large buildings, bridges and dams; these products include SHORE PAC® and PREMIUM GEL®.
Sales and Distribution
On an individual customer basis, we generated less than $5 million of sales from each of the top five customers in the environmental segment. Approximately 48% of sales are in the Americas where the U.S. is our largest geographical market for all product lines. Approximately 43% of sales are in EMEA and the remaining 9% in the Asia-Pacific region.
Sales and distribution of the lining technologies products and our contracting services are primarily performed through our own personnel and facilities. Service revenues in our contracting business are primarily generated under medium to long-term contracts. For both businesses, our staff includes sales professionals and technical support engineers who analyze the suitability of our products in relation to the customer’s specific application and the conditions that products will endure or the environment in which they will operate.
The building materials products are sold through our own sales professionals as well as through an integrated distributor and dealer network. Our customers are generally building sub-contractors who are responsible for installing the products.
Our drilling product lines are generally sold through an extensive distribution network coordinated by our regional sales managers. The end customers for these products are typically small well drilling companies and general contractors.
Our remediation technologies products are primarily sold through approved contractors who are environmental project specialists. Our sales and technical staff typically assist project designers by providing technical data to engineers and architects who specify our products in the design of building structures or remediation sites.
Competition
Our lining technologies business competes with geosynthetic clay liner manufacturers worldwide, several suppliers of alternative lining technologies, and providers of soil and environmental remediation solutions and products. The building materials product lines compete in a highly fragmented market comprised of a wide variety of alternative technologies. Competitors in our contracting services business primarily include other specialty and general contractors, some of which have substantially greater resources. A number of integrated bentonite companies compete against us in the drilling products business. Competition in all business units is based on product quality, service, price, technical support and product availability.
Seasonality
Most of the business in the environmental segment is impacted by weather and soil conditions. Many of the products cannot be applied in wet or winter weather conditions and, as such, sales and profits tend to be larger during the period from April through October. As a result, we consider the business of this segment to be seasonal.
OILFIELD SERVICES SEGMENT
Principal Services and Markets
Our oilfield services segment provides both onshore and offshore water treatment filtration, well testing, pipeline separation, nitrogen, coil tubing and other services to the oil and natural gas industry. We sell products and services through wholly-owned subsidiaries located in Australia, Brazil, Malaysia, Nigeria, the United Kingdom, and the U.S., principally in the Gulf of Mexico and surrounding on-shore area. The following are our principal services and product lines we provide:
Filtration. We help customers protect the environment, especially marine environments, and comply with regulatory requirements by providing technologies, filtration media and services to help them discharge waste water generated during oil production.
Well Testing. We provide equipment and personnel to help customers control well production as well as to clean up, unload, separate, measure component flow, and dispose of fluids from oil and gas wells.
Pipeline. Our personnel utilize engineered equipment that separates, filters, cleans and allows treatment of effluents arising from pipeline testing and maintenance activities.
Nitrogen Services. Liquid nitrogen is commonly used in the pipeline, refinery, and oil and natural gas business. By providing liquid nitrogen that is then changed into nitrogen gas with our personnel and mobile equipment, we help customers perform maintenance activities in a safe environment on their production platforms, pipeline operations, and refineries. These services are provided in jetting wells that are loading with fluid; stimulating wells, including fracturizing and acidizing; displacing completion fluids prior to perforating; airing up cans for offshore floating installations; and pressure testing and other maintenance activities.
Coil Tubing & Rentals. Our coil tubing services utilize a long, continuous length of pipe which is wound on a spool or reel. We rent the coil tubing and provide operating personnel to pump fluids through the tubing into boreholes or to assist in certain well-drilling applications. Before being pushed into a well head, the pipe is straightened, then pumped with fluid, and finally rewound or coiled back onto the reel housed on our transport units. Our coil tubing services are typically provided in areas of nitrogen displacement, acidizing, cleanouts, and other workovers and provide a benefit over traditional well intervention methods as fluids can be pumped at any time regardless of the position and direction of travel. Last, we rent specialized equipment such as high-pressure pumps, iron, and manifolds to oil and gas production platform operators.
Competition
Our oilfield services group competes with other oil services companies. Several of these competitors have significantly more resources than we do and consequently may be better able to compete in periods of economic downturn, especially in terms of selling prices. However, we believe we offer several competitive advantages, especially in the area of water treatment services, due to superior and innovative technologies that we have developed internally and the combination of services that we can provide.
Sales and Distribution
The top six customers in our oilfield services segment accounted for 30% of the segment sales worldwide. Approximately 84% of sales are in the Americas. Our largest geographical market is the U.S., and more specifically the Gulf of Mexico region. Approximately 12% of sales are in the Asia-Pacific region and 4% are in EMEA.
Our businesses primarily sell and distribute products and services on a direct basis. Our principal customers are oil and natural gas companies who maintain substantial offshore and onshore drilling and production platforms for both oil and gas.
Seasonality
Much of the business in the oilfield services segment is impacted by weather conditions. Our business is concentrated in the Gulf of Mexico and surrounding states where our customers’ oil and gas production facilities are subject to natural disasters, such as hurricanes. Given this, our sales could be lower in the June to November months.
TRANSPORTATION SEGMENT
We operate a long-haul trucking business and a freight brokerage business primarily for delivery of finished products throughout the continental U.S. These services are provided to our subsidiaries as well as third-party customers. Through our transportation business, we are better able to control costs, maintain delivery schedules and assure equipment availability in the delivery of our products. In 2010, approximately 30% of the revenues of this operation involved services provided to our domestic minerals and materials and environmental segments.
MINERAL RESERVES AND MINING
Mineral Reserves
We have reserves of sodium and calcium bentonite at various locations in the U.S., including Wyoming, South Dakota, Montana and Alabama, as well as in Australia, China, and Turkey. Through our investments in affiliates and joint ventures, we also have access to bentonite deposits in Azerbaijan, Egypt, India, Mexico, and Russia. At 2010 consumption rates and product mix, we have proven, assigned reserves of commercially usable sodium bentonite for the next 29 years. We have proven, assigned reserves of commercially usable calcium bentonite for the next 14 years. While we believe that our reserve estimates are reasonable and our title and mining rights to our reserves are valid, we have not obtained any independent verification of such reserve estimates or such title or mining rights.
We own or control the properties on which reserves are located through long-term leases, royalty agreements and patented and unpatented mining claims. A majority of our bentonite reserves are owned. No single or group of mining claims or leases is significant or material to the financial condition or operations of our Company or our segments.
A majority of our current bentonite mining activities in the U.S. do not occur on reserves we own. Rather, the majority of our current bentonite mining in the U.S. occurs on reserves comprised of over eighty mining lease and royalty agreements (including easement and right of way agreements) and 2,000 mining claims. The majority of these are with private parties and located in Montana, South Dakota and Wyoming. The bentonite deposits underlying these claims and leases generally lie in parcels of land varying between 20 and 40 acres.
In general, the reserves are immediately adjacent to, or within sixty miles of, one of seven related processing plants. All of the properties on which our 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. Access to processing facilities from the mining areas is generally by private road, public highways, or railroads. For each leased property and mining claim, there are multiple means of access.
To retain possessory rights in unpatented mining claims in North America, a fee of $140 per year for each unpatented mining claim is required. The validity of title to unpatented mining claims is dependent upon numerous factual matters. We believe that the unpatented mining claims that we own are in compliance with all applicable federal, state and local mining laws, rules and regulations. We are not aware of any material conflicts with other parties concerning our 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 our unpatented claims may become uneconomic and royalty rates for privately leased lands may be affected. We cannot predict the effect any potential amendments may have or whether or when any such amendments might be adopted.
We maintain a continuous program of worldwide exploration for additional reserves and attempt to acquire reserves sufficient to replenish our consumption each year, but we cannot assure that additional reserves will continue to become available.
We oversee all of our mining operations, including our exploration activity and securing the necessary permits from appropriate government agencies.
The following table shows a summary of our mineral sales from active mining areas for the last 3 years in short tons, as well as mineral reserves by major mineral category.
** Quantity of reserves that would be owned if patent was granted.
Assigned reserves are reserves which could be reasonably expected to be processed in existing plants. Unassigned reserves are reserves which will require additional expenditures for processing facilities. Conversion factor is the percentage of reserves that will be available for sale after processing. Our estimates of assigned and unassigned reserves in the above table require us to make certain key assumptions. These assumptions relate to consistency of clay beds in relation to drilling samples obtained with respect to both quantity and quality of reserves contained therein; the ratio of overburden to mineral deposits; any environmental or social impact of mining the minerals; and profitability of extracting those minerals, including haul distance to processing plants, applicability of minerals to various end markets and selling prices within those markets, and our past experiences in the mineral beds, several of which we have been operating in for over 80 years. We estimate that available supplies of other materials utilized in our minerals and materials business are sufficient to meet our 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 our clay is done by us and by independent contractors.
At the processing plants, bentonite is dried, crushed and sent through grinding mills, where it is sized to customer requirements, 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.
CROSS SEGMENT FUNCTIONS
Product Development and Patents
We work actively with customers in each of our major markets to develop and commercialize new products and applications of existing products to solve customer problems. We maintain research centers and laboratory testing facilities in Hoffman Estates, Illinois; Birkenhead, England; and Tianjin, China. When we perceive a need for a product that will accomplish a particular goal, we work to develop the product, research its marketability and study the feasibility of its production. We also co-develop products with customers, or others, as needs arise. Our development efforts emphasize markets with which we are familiar and products for which we believe there is a viable market.
We hold a number of U.S. and international patents. We follow the practice of obtaining patents on new developments whenever feasible. However, we do not consider that any one or any combination of such patents is material to our businesses as a whole.
Research and Development
Our business segments share research and laboratory facilities, and technological developments are shared among our subsidiaries, subject to license agreements where appropriate. Further information on research and development activities is included in our Notes to Consolidated Financial Statements contained in Item 8 of this report.
Regulation and Environmental
We believe we are in material compliance with current, applicable mining regulations. Since reclamation of exhausted mining sites has been a regular part of our surface mining operations since 1973, 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 these processes generate dust, our mineral processing plants are subject to applicable clean air standards (including Title V of the Clean Air Act). All of our plants are equipped with dust collection systems. We have not had, and do not presently anticipate, any significant regulatory problems in connection with our dust emission, though we expect ongoing expenditures for the maintenance of our dust collection systems and required annual fees.
Our 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 historically not had a material adverse effect on us, future events, such as changes in or modified interpretations of existing laws and regulations, 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 us.
FOREIGN OPERATIONS AND EXPORT SALES
Approximately 36% of our 2010 net sales were generated in countries outside the Americas. Our foreign operations have typically comprised about a third of our income from continuing operations before income taxes, income from affiliates and joint-ventures, and non-controlling interest. However, in 2009, they comprised approximately 58% of that income as the economic recession more heavily affected our domestic operations than our foreign operations. Of our tons sold from our domestic mineral deposits in 2010, approximately 21% of these shipments were made to our sister companies and third party customers located outside the United States as compared to 17% and 24% in 2008 and 2009, respectively.
To enhance our overseas market presence, we maintain mineral processing plants in the United Kingdom, China, Australia, South Korea, Poland, Thailand, South Africa and Turkey. Chartered vessels deliver large quantities of our bulk, dried sodium bentonite to the plants in the United Kingdom, Poland, Australia, Thailand and South Korea where it is processed and mixed with other clays and distributed throughout Europe and the Asia-Pacific region. In addition, we maintain a worldwide network of independent dealers, distributors and representatives to support sales and distribution.
We manufacture geosynthetic clay liners in the United Kingdom, Spain, Poland, China, South Korea and India (through our joint venture company Ashapura Volclay Limited). These international operations provide a cost-effective means of supplying the European and Asia-Pacific markets.
Our oilfield services segment maintains offices and operations centers in Australia, Brazil, Malaysia, Nigeria and Scotland to service customers in those local markets.
Our international operations are subject to the usual risks of doing business abroad and in developing countries, such as currency fluctuations and devaluation, restrictions on the transfer of funds, and import and export duties.
The Notes to Consolidated Financial Statements included in Item 8 of this report present further details on our sales by geographic region. These Notes are incorporated by reference for sales attributed to foreign operations and export sales from the U.S.
EMPLOYEES
As of December 31, 2010, we employed 2,383 people in our global organization, 1,208 of whom were employed outside of the United States. Operating plants are adequately staffed, and no significant labor shortages are presently foreseen. Labor relations have been satisfactory.
AVAILABLE INFORMATION
We file annual, quarterly and current 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 100 F. Street N.E., Washington, D.C., 20549. Please call (800) SEC-0330 for further information on the Public Reference Room. The SEC maintains a website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. Our filings are available to the public at this website, www.sec.gov.
Our principal Internet address is www.amcol.com. Our annual, quarterly and current reports, and amendments to those reports, are available free of charge on www.amcol.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Item 1A.
Item 1A. Risk Factors
Certain statements we make from time to time, including statements in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section hereafter, constitute “forward-looking statements” made in reliance upon the safe harbor contained in Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements include statements relating to our Company or our operations that are preceded by terms such as “expects,” “believes,” “anticipates,” “intends” and similar expressions, and statements relating to anticipated growth, acquisitions, levels of capital expenditures, future dividends, expansion into global markets and the development of new products. Such forward-looking statements speak only as of the date hereof and are not guarantees of future performance and involve risks and uncertainties. Our actual results, performance or achievements could differ materially from the results, performance or achievements expressed in, or implied by, these forward-looking statements as a result of various factors. We undertake no duty to update any forward-looking statements to conform the statement to actual results or changes in our expectations.
A number of risks will challenge us in meeting our long-term profit and strategic objectives, and there can be no assurance that we will achieve success in implementing any one or more of them. Specifically, the risks outlined below could affect the achievement of our expected results. In addition, political, economic, or credit crises occur from time to time in our geographic markets, and these crises could affect or heighten the risks outlined below, especially with regard to our reliance on key industries, the volatility of our stock price, and increased exchange rate sensitivity. The credit crisis may also affect our ability to obtain capital or finance acquisitions or other activities on terms substantially similar to our current debt facilities should that need arise in the future. Any of these factors or the risks outlined below could affect our business opportunities and results:
Reliance on Metalcasting & Construction Markets
Approximately 48% of our minerals and materials segment’s sales in 2010 were to the metalcasting market. Our environmental segment’s sales are predominantly derived from the commercial construction and infrastructure markets. All of these markets depend heavily upon the strength of the domestic and international economies. If these economies weaken, demand for our products sold to these markets may decline and our business or future financial results may be adversely affected.
Susceptibility to Oil and Natural Gas Markets
Revenues from our oilfield services segment in 2010 represent 18% of consolidated revenues and 21% of consolidated operating income. Oil and natural gas production activities are heavily influenced by the benchmark price of these commodities, which can be influenced by both economic and political events and, in turn, affect our customers’ demand for our products and services. Thus, the benchmark prices of oil and natural gas may ultimately affect the performance of this segment.
In addition, oil and natural gas exploration and production activities depend heavily on the location of these natural resources within the earth’s geology and geographic location as well as technologies available to profitably extract them. For example, the recent application of horizontal drilling technologies allow natural gas production companies to extract significantly greater amounts of natural gas in geological deposits located in areas where we currently do not have a significant presence. Thus, the performance of our oilfield services segment is affected by changes in technologies, locations of customers’ targeted reserves, and competition in various geographic markets.
Sensitivity to Energy and Petroleum Related Products
We purchase a significant amount of raw materials which are derived from petrochemical products. Our production processes also consume a significant amount of energy, primarily electricity, diesel fuel, natural gas and coal. We use diesel fuel to operate our mining and processing equipment and our freight costs are heavily dependent upon fuel prices and surcharges.
On a combined basis, these factors represent a large exposure to petrochemical and energy products which may be subject to significant price fluctuations. While we have been successful in attaining price increases in certain markets to offset some of these rising costs, there can be no assurance that we will be successful in continuing to achieve these price increases or protecting our margins.
Availability and Cost of Shipping
We rely on shipping bulk cargos of bentonite from the United States and China to customers, as well as our own subsidiaries, and we are sensitive to our ability to recover these shipping costs. In the last few years, bulk cargo shipping rates have been very volatile, and, to a lesser extent, the availability of bulk cargo containers has been suspect. If we can not secure our container requirements or offset additional shipping costs with price increases to customers, our profitability could be impacted.
Seasonality of Our Oilfield Services and Environmental Segments
Our oilfield services and environmental segments are affected by seasonal weather patterns. A majority of our oilfield services’ revenues are derived from the Gulf of Mexico and surrounding states, which are susceptible to hurricanes that typically occur in the Fall months. In addition, it is affected by customers’ demands for natural gas. Natural gas is affected by weather patterns as colder winters increase the demand for natural gas to heat homes and warmer summers increase the demand for natural gas to fuel generators providing electricity to run air conditioners. Actual or threatened hurricanes or changes in the demand for natural gas can result in volatile demand for services provided by our oilfield services segment.
Our environmental segment is affected by weather patterns which determine the feasibility of construction activities. Typically, less construction activity occurs in winter months and thus this segment’s revenues tend to be greatest in the second and third quarters when weather patterns in our geographic markets are more conducive to construction activities.
Cyclicality of Our Segments
All of our segments are affected by economic cycles. During periods of economic slowdown, our customers often reduce their capital expenditures and defer or cancel pending projects. Such developments occur even amongst customers that are not experiencing financial difficulties. These risks are more predominant in our environmental and minerals and materials segments.
In our environmental segment, the construction and infrastructure markets are heavily dependent upon the strength of domestic and international economies. In our minerals and materials segment, the metalcasting market is dependent upon the demand for castings for automobile components, farm and construction equipment, oil and gas production equipment, power generation turbine castings, and rail car components. Many of these types of equipment are sensitive to fluctuations in demand during periods of recession or tough economies, which ultimately may affect the demand for our environmental and minerals and materials segments’ products and services.
Moreover, in periods of lower economic productivity or recession, oil and natural gas prices tend to decrease, which in turn causes exploration companies to reduce their capital expenditures and production and exploration activities. This has the effect of decreasing the demand and increasing competition for the services that our oilfield services segment provides.
Risks of International Expansion & Operation
An important part of our business strategy is to expand internationally by establishing our own presence in new markets when possible or through acquisitions, joint ventures or other strategic alliances. Sales and earnings from our overseas operations have increased considerably in recent years and comprise a significant portion of our financial results; including our joint ventures. As we expand and operate internationally, we will be subject to a myriad of risks, especially in less developed countries whose economies increase at rates faster than more developed nations. These risks relate to currency exchange rates, political and economic environments, business and trade laws, and regulatory and compliance issues. These risks are beyond our control and can lead to sudden, and potentially prolonged, changes in demand for our products, difficulty in enforcing agreements, losses in the realizability of our assets, or fluctuations in our earnings due to the impact from our joint ventures.
Regulatory and Legal Matters
Our operations are subject to various federal, state, local and foreign laws and regulations relating to environmental and to health and safety matters. Substantial penalties may be imposed if we violate certain of these laws and regulations, even if the violation was inadvertent or unintentional. If these laws or regulations are changed or interpreted differently in the future, it may become more difficult or expensive for us to comply. In addition, investigations or evaluations of our products by government agencies may require us to adopt additional safety measures or precautions. If our costs to comply with such laws and regulations in the future materially increase, our business and future financial results could be materially and adversely affected. We may also be subject to adverse litigation results in addition to increased compliance costs arising from future changes in laws and regulations that may negatively impact our operations and profits. Last, certain of our customers are subject to various federal and foreign laws and regulations relating to environmental and health and safety matters, especially our oilfield customers who are subject to drilling permits, wastewater disposal and other regulations. To the extent that these laws and regulations affecting our customers change, demand for our products and services could also change and thereby affect our financial results.
Ability to Complete, Integrate & Finance Acquisitions
Our business strategy includes pursuing acquisitions of complementary businesses, through either our own wholly-owned subsidiaries or our investments in affiliates and joint ventures. The success of any future acquisitions or investments will be dependent upon our ability to locate an attractive business at an attractive price and our ability to successfully integrate them into our existing operations.
In addition, we have typically financed our acquisitions and investments with debt available to us under our various credit facilities and our ability to issue new debt. However, we may decide to pay all or a portion of the purchase price of any future acquisition or investment with shares of our common stock. If we use our common stock in this way, the price of our stock may decrease.
Ability to Pay Dividends
We currently declare and pay regular cash dividends on our common stock. Any future payment of cash dividends will depend upon our financial condition, earnings, legal requirements, restrictions in our debt agreements and other factors deemed relevant by our board of directors. Our board of directors may decrease or discontinue payment of dividends at any time.
Impact of Competition
Our businesses have many competitors, some of whom are larger and have more resources than we do. We also face competition for some of our products from alternative products, and some of the competition we face comes from competitors in lower-cost production countries like China and India. Many factors could change the level of competition we face in our markets, which could result in decreased demand for our products and services and negatively affect our financial performance.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We operate the following principal plants, mines and other facilities, all of which are owned, except as noted below. We also have numerous other facilities which blend ADDITROL ®, package cat litter and chromite sand, warehouse products and serve as sales offices.
(1) Shared facilities between minerals and materials and environmental segments.
(2) Certain offices and facilities are leased.
We consider our plants in the Western U.S. to be of strategic importance given their production capacity, products manufactured, and proximity to our mineral reserves. All of our pet products are manufactured either in our Lovell, WY plant or one of our Colony, WY plants given their granularization capabilities and the fact that their location provides freight cost savings to key customers. Our Sandy Ridge, AL facility supplies calcium bentonite to our U.S. blending plants as an ingredient for production of ADDITROL®. The blending plants have collective importance since they produce customized products for metalcasting customers.
Item 3.
Item 3. Legal Proceedings
We are party to a number of lawsuits arising in the normal course of our business. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial position or results of operations. Since the mid-1980s, we and/or our subsidiaries have been named as one of a number of defendants in product liability lawsuits relating to the minor free-silica content of our bentonite products used in the metalcasting industry. The plaintiffs in these lawsuits are primarily employees of our foundry customers. To date, we have not incurred significant costs in defending these matters. We believe we have adequate insurance coverage and do not believe the litigation will have a material adverse impact on our financial condition, liquidity or results of our operations.
Our processing and manufacturing operations require permits from various governmental authorities. From time to time, we have been contacted by government agencies with respect to required permits or compliance with existing permits. While we have been notified of certain situations of non-compliance, we do not expect the fines or the cost of becoming compliant, if any, to be significant.
We have neither been nor expect to be assessed any tax shelter penalties by the United States Internal Revenue Service for tax shelter transactions that either the IRS deems abusive or have significant tax avoidance penalties.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of Registrant
All executive officers of the Company are elected annually by the Board of Directors for a term expiring at the annual meeting of directors following their election or when their respective successors are elected and shall have qualified.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters
Our 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 sale prices of the common stock, as reported by the New York Stock Exchange, and cash dividends declared per share.
We have paid cash dividends every year since 1938. As of February 8, 2011, there were approximately 6,907 holders of record of the common stock, including shares held in street name.
Purchases of Equity Securities
We did not repurchase any of our outstanding common stock in 2010.
Equity Compensation Plan Information
Our outstanding equity compensation awards are comprised of stock options, stock settled appreciation rights, and restricted stock awards issued under our 1998 Long-Term Incentive Plan, 2006 Long-Term Incentive Plan and our 2010 Long-Term Incentive Plan. All outstanding awards at December 31, 2010 relate to our common stock. We do not have any equity compensation plans which have not been approved by our shareholders. Shares issued as a result of awards made under these plans may be from our treasury, newly issued or both. At December 31, 2010, the number of securities to be issued upon exercise of outstanding stock compensation awards and the related weighted-average exercise price of these awards was 1,848,308 shares at $21.76 per share. The total number of securities available for future award lie in our 2010 plan and equal 2,000,000 awards as of December 31, 2010.
Item 6.
Item 6. Selected Financial Data
The following is selected financial data for the Company for each of the below annual periods ending December 31st.
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
Continued…
SUMMARY OF OPERATIONS
(In thousands, except ratios and share and per share amounts)
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a global company focused on long term profitability growth through the development and application of minerals and technology products and services to various industrial and consumer markets. The majority of our revenue growth has been achieved by sustaining our products’ technological advantages, developing new products and applying them in innovative ways, and bringing additional products and services to markets we already serve. We focus our research and development activities in areas where we can either leverage our current customer relationships and mineral reserves or enhance existing or related products and services.
The principal mineral that we utilize to generate revenues is bentonite. We own or lease bentonite reserves in the U.S., Australia, China and Turkey. Additionally, through our affiliates and joint ventures, we have access to bentonite reserves in Egypt, India, Russia, Azerbaijan and Mexico. We also develop applications for other minerals, including chromite ore from our mine in South Africa.
Bentonite is surface mined when it is commercially feasible to have it shipped to a plant for further processing, including crushing, drying, milling and packaging. Bentonite deposits have varying physical properties which require us to identify which markets our reserves can serve. Nicknamed the mineral of a thousand uses, bentonite has several unique characteristics including its ability to bind, swell, adsorb, control rheology, soften fabrics, and have its surface modified through chemical and physical reactions. Our research and development activities, including our understanding of bentonite properties, mining methods, processing and application to markets are some of the core components of our longevity and future prospects.
We operate in five segments: minerals and materials, environmental, oilfield services, transportation and corporate. Both our minerals and materials and environmental segments operate manufacturing facilities in North America, Europe, and the Asia-Pacific region. Our minerals and materials segment also owns and operates a chrome mine in South Africa. Our oilfield services segment principally operates in North America’s Gulf of Mexico and surrounding states and also has a growing presence in South America, Africa and Asia. Additionally, we have a transportation segment that performs trucking services for our domestic minerals and materials and environmental businesses as well as third parties.
Our customers are engaged in various end-markets and geographic regions. Customers in the minerals and materials segment range from foundries that produce castings for automotive, industrial, and transportation equipment, including heavy-duty trucks and railroad cars, to producers of consumer goods, including cat litter, cosmetics and laundry care. Customers in our environmental segment include construction contractors, engineering contractors and government agencies. The oilfield services segment’s customer base is primarily comprised of oil and natural gas service or exploration companies. A significant portion of our products have been used in the same applications for decades and have experienced minimal technological obsolescence. A majority of our sales are made pursuant to short-term agreements; therefore, terms of sale, such as pricing and volume, can change within our fiscal year.
A majority of our revenues are generated in the Americas, principally North America. Consequently, the state of the U.S. economy, and especially the metalcasting and industrial construction industries, impacts our revenues. Our fastest growing markets are in the Asia-Pacific and European regions, which have continued to outpace the U.S. in economic growth.
Sustainable, long-term profit growth is our primary objective. We employ a number of strategic initiatives to achieve this goal:
·
Organic growth: The central component of our growth strategy is expansion of our product lines and market presence. We have a history of commitment to research and development activities directed at bringing innovative products to market. We believe this approach to growth offers the best probability of achieving our long-term goals at the lowest risk.
·
Globalization: As we have done for decades, we continue to expand our manufacturing and marketing organizations into emerging geographic markets. We see significant opportunities in the Asia-Pacific and Eastern European regions for expanding our revenues and earnings over the long-term as a number of markets we serve, such as metalcasting and lining technologies, are expected to grow in these areas. We expect to take advantage of these growth areas, either through our wholly-owned subsidiaries or investments in affiliates and joint ventures.
·
Mineral development: Bentonite is a component in a majority of the products we supply. Since it is a natural material, we must continually expand our reserve base to maintain a long-term business. Our goal is to add new reserves to replace the bentonite mined each year. Furthermore, we need to assure that new reserves meet the physical property requirements for our diverse product lines and are economical to mine. Our organization is committed to developing its global reserve base to meet these requirements.
·
Acquisitions: We continually seek to acquire complementary businesses, as appropriate, when we believe those businesses are fairly valued and fit into our growth strategy.
There can be no assurance that we will achieve success in implementing any one or more of the strategic initiatives described above.
A number of risks will challenge us in meeting our long-term objectives. We describe certain of these risks, such as competition and our reliance on economically sensitive markets, under “Item 1A. Risk Factors” and “Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from fluctuations in foreign currency exchange rates, interest rates, credit risk, and market risks on certain publicly traded securities. We use a variety of practices to manage these market risks, including derivative financial instruments when appropriate. Our treasury and risk management policies prohibit us from using derivative instruments for trading or speculative purposes. We also do not use leveraged derivative instruments or derivatives with complex features.
Exchange Rate Sensitivity
As we operate in over 25 countries with many international subsidiaries, we are exposed to currency fluctuations related to manufacturing and selling our products and services. This foreign currency risk is diversified and involves assets, liabilities and cash flows denominated in currencies other than the U.S. dollar. Our major foreign currency exposures involve our subsidiaries in Europe, Southeast Asia, and South Africa, although all foreign subsidiaries are subject to foreign currency exchange rate risk versus the U.S. dollar. Exchange rates between these currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to do so in the future.
We manage our foreign currency exchange risk in part through operational means, including managing same currency revenues versus same currency costs as well as same currency assets versus same currency liabilities. We also have subsidiaries with the same currency exposures which may offset each other, providing a natural hedge against one another’s currency risk. From time to time, we also use derivative instruments to reduce these foreign currency exchange rate risks. At December 31, 2010, we did not have any foreign currency derivative contracts outstanding.
Assets and liabilities of our international subsidiaries are translated to their parent company’s reporting currency at current exchange rates during consolidation; gains and losses stemming from these translations are included as a component of Other Comprehensive Income and reported within Accumulated Comprehensive Income within our consolidated balance sheet. Income and expenses of our international subsidiaries are translated at average exchange rates for the period, and any gains or losses on these transactions are included within Other income, net within our consolidated statement of operations.
We can calculate the effect that changes in exchange rates would have on our total assets and net income. This calculation cannot be extrapolated to actual results that might occur because changes in the relationship of exchange rates may also impact other assumptions and calculations, such as the income tax expense, which may counteract the sensitivities. Notwithstanding and holding all other variables constant, a 10% increase in the year-end exchange rates and a 10% increase in our annual average exchange rates would result in a 4% and 2% increase in our total assets and net income to AMCOL shareholders, respectively. These changes are hypothetical scenarios used to calibrate potential risk and do not represent our view of future market changes.
Interest Rate Sensitivity
The following table provides information about our financial instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates for debt obligations. The table below shows each instrument’s cash flows in U.S. dollars with a notation as to the actual currency the cash flow is denominated in.
We periodically use interest rate swaps to manage interest rate risk on debt securities. These instruments allow us to convert variable rate debt into fixed rate or fixed rate debt into variable rate. Interest rate differentials are paid or received on these arrangements over the life of the agreements. The interest rates above for our Fixed rate - Senior notes and Fixed rate - Revolver include the effect of interest rate swaps as outlined in our Notes to Consolidated Financial Statements.
Credit Risk
We are exposed to credit risk on certain assets, primarily accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base. We currently believe our allowance for doubtful accounts is sufficient to cover customer credit risks. Our accounts receivable financial instruments are carried at amounts that approximate fair value.
Securities Market Risk
We own shares of Ashapura Minechem Limited (“Ashapura”), a public company traded on the Bombay Stock Exchange Limited. We record the fair value of this investment on our Consolidated Balance Sheet using the closing price of Ashapura’s shares on the exchange as of the last day of the reporting period. The value of this investment, therefore, is subject to market forces underlying the closing price per share. We record the investment as an available-for-sale security and recognize changes in its fair value in the Consolidated Statement of Comprehensive Income.
Item 8.
Item 8. Financial Statements and Supplementary Data
See the Index to Financial Statements and Exhibits and Financial Statement Schedule on page 44. Such financial statements and schedule are incorporated herein by reference.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. The design of any system of controls is also based, in part, upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, we conclude that our internal control over financial reporting was effective as of December 31, 2010.
Our independent registered public accounting firm has audited our internal control over financial reporting as of the end of the period covered by this report as stated in their report, which appears in Part IV of this Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.
Item 9B. Other Information
Dodd-Frank Act Disclosure of Mine Safety and Health Administration Safety Data
We have in place health and safety programs that include extensive employee training, accident prevention, workplace inspection, emergency response, accident investigation, regulatory compliance and program auditing. The objectives of our health and safety programs are to eliminate workplace incidents, comply with all mining-related regulations and improve mine safety.
The operation of our domestic mines is subject to regulation by the federal Mine Safety and Health Administration ("MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA inspects our mines on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. We present information below regarding certain mining safety and health citations which MSHA has issued with respect to our mining operations.
For the three-month period ended December 31, 2010, none of our mining operations received written notice from MSHA of (i) a citation for violation of mandatory health or safety standards that could significantly contribute to the cause and effect of our mines safety or health hazard under section 104 of the Mine Act (ii) an order issued under section 104(b) of the Mine Act; (iii) a citation or order for unwarrantable failure to comply with mandatory health or safety standards under section 104 (d) of the Mine Act; (iv) a flagrant violation under section 110(b)(2) of the Mine Act; (v) an imminent danger order under section 107(a) of the Mine Act; (vi) a proposed assessment; (vii) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of our mine health or safety hazards under section 104(e) of the Mine Act; or (viii) the potential to have such a pattern. For the three-month period ended December 31, 2010, we experienced no fatalities.
For the twelve-month period ended December 31, 2010, none of our mining operations received written notice from MSHA of (i) an order issued under section 104(b) of the Mine Act; (ii) a flagrant violation under section 110(b)(2) of the Mine Act; (iii) a pattern of violations of mandatory health or safety standards that are of such nature as could have significantly and substantially contributed to the cause and effect of our mine health or safety hazards under section 104(e) of the Mine Act; or (iv) the potential to have such a pattern. For the twelve-month period ended December 31, 2010, we experienced no fatalities.
The table below sets forth by mining complex the total number of citations and/or orders issued during the twelve-month period ended December 31, 2010 by MSHA to AMCOL and its subsidiaries under the indicated provisions of the Mine Act, together with the total dollar value of proposed MSHA assessments (dollar amounts are actual, not thousands).
1.
Total number of violations of mandatory health or safety standards that could significantly and substantially contribute to the cause and effect of a mine safety or health hazard under section 104 of the Mine Act for which AMCOL and its subsidiaries received a citation from MSHA
2.
Total number of citations and orders for unwarrantable failure of the mine operator to comply with mandatory health or safety standards under section 104(d) of the Mine Act issued to AMCOL and its subsidiaries.
3.
Total number of imminent danger orders issued under section 107(a) of the Mine Act to AMCOL and its subsidiaries.
4.
Total dollar amount of proposed assessments received from MSHA on or before December 31, 2010, for citations and orders occurring during the twelve-month period then ended.
As of December 31, 2010, we have a total of 8 matters pending before the Federal Mine Safety and Health Review Commission.
In evaluating this information, consideration should be given to factors such as: (i) the number of citations and orders will vary depending on the size of the mine, (ii) the number of citations issued will vary from inspector to inspector and mine to mine, and (iii) citations and orders can be contested and appealed, and in that process, are often reduced in severity and amount, and are sometimes dismissed.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant
Information regarding our directors is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Information regarding our executive officers is included under a separate caption in Part I hereof in accordance with General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K.
We have adopted a Code of Business Conduct and Ethics (the “Code”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions, as well as other employees. The Code, our Corporate Governance Guidelines and the charters of our Audit Committee, Compensation Committee and Nominating and Governance Committee are publicly available on our website at www.amcol.com and are available in print, free of charge, to any shareholder upon request addressed to our Corporate Secretary at AMCOL International Corporation, 2870 Forbs Avenue, Hoffman Estates, Illinois 60192. If we make any substantive amendments to the Code or grant any waiver, including any implicit waiver, from a provision of the Code to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions, we will disclose the nature of such amendment or waiver on our website or in a report on Form 8-K in accordance with applicable rules and regulations.
Item 11.
Item 11. Executive Compensation
Information regarding the above is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information regarding security ownership of certain beneficial owners and management is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information regarding relationships and related transactions, and director independence is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
Item 14.
Item 14. Principal Accountant Fees and Services
Information regarding principal accountant fees and services is included in our definitive proxy statement, which will be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, and is incorporated herein by reference.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedule
Item 15(a) Index to Financial Statements and Financial Statement Schedule
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.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AMCOL International Corporation
We have audited the accompanying consolidated balance sheets of AMCOL International Corporation and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 consolidated financial position of AMCOL International Corporation and Subsidiaries at December 31, 2010 and 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of AMCOL International Corporation’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 1, 2011
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of AMCOL International Corporation
We have audited AMCOL International Corporation and Subsidiaries’ internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). AMCOL International Corporation and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, AMCOL International Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2010 consolidated financial statements of AMCOL International Corporation and Subsidiaries and our report dated March 1, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Chicago, Illinois
March 1, 2011
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
Continued…
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(In thousands)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Equity
(In thousands, except share and per share amounts)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In thousands)
See accompanying notes to consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(1)
Summary of Significant Accounting Policies
Recently Adopted Accounting Standards
In June 2009, the Financial Accounting Standard Board (“FASB”) issued guidance codified in Accounting Standard Codification (“ASC”) Topic 810, which amends consolidation guidance applicable to variable interest entities (“VIEs”) and requires additional disclosures concerning an enterprise’s continual involvement with VIEs. The adoption of this guidance on January 1, 2010 did not have a material impact on our financial statements.
In January 2010, the FASB issued Accounting Standards Update (“ASU”) 2010-06, Improving Disclosures about Fair Value Measurements, codified in ASC Topic 820. This update clarifies the existing guidance and requires separate disclosure and justification for significant transfers in and out of Level 1 and Level 2 fair value measurements and information about purchases, sales, issuances and settlements in the reconciliation of Level 3 fair value measurements. The adoption of new disclosures relating to significant transfers on January 1, 2010 and the adoption of disclosure requirements in the roll forward activity in Level 3 fair value measurements on January 1, 2011 did not have a material impact on our financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of our domestic and foreign subsidiaries as well as variable interest entities for which we have determined that we are the primary beneficiary. We consolidate all subsidiaries in which we own 50% or more of their equity. We use the equity method of accounting to incorporate the results of our investments in companies in which we have significant influence.
At the segment level, transactions between our transportation segment and all other segments are not eliminated. This elimination only occurs upon consolidation. However, all other intercompany transactions, including sales from our minerals and materials segment to the other segments, are eliminated within the minerals and materials segment. All intercompany balances and transactions are eliminated upon consolidation.
Segments
The composition of consolidated revenues by segment is as follows:
Further descriptions of our products, principal markets and the relative significance of our segment operations are included in Note 2.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amount of assets, liabilities, revenues and expenses reported in our financial statements as well as certain disclosures contained therein. Actual results may differ from those estimates.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Revenue Recognition
We recognize revenue from sales of products when title passes to the customer, the customer assumes the risks and rewards of ownership, and collectibility is reasonably assured; generally, this occurs when we ship product to customers. We record allowances for discounts, rebates, and estimated returns at the time of sale and report these as reductions to revenue. We generate some sales through independent, third-party representatives. We record these sales as revenue and the commission compensation paid to the representative as an expense within general, selling and administrative expenses.
We recognize revenue for freight delivery services within our transportation segment when the service is provided. We accrue amounts payable for purchased transportation, commissions and insurance when the related revenue is recognized.
Service and rental revenues are primarily generated in our environmental and oilfield services segments. We recognize these revenues in the period such services are performed and collectibility is reasonably assured.
We record revenue from long-term construction contracts, typically generated in our environmental segment, using the percentage-of-completion method. Progress is generally based upon costs incurred to date as compared to the total estimated costs to complete the work under the contract. All known or anticipated losses on contracts are provided when they become evident. Cost adjustments that are in the process of being negotiated with customers for extra work or changes in scope of work are included in revenue when collection is deemed probable.
Translation of Foreign Currencies
Foreign entities utilize their local currency as the functional currency. We record gains and losses resulting from foreign currency transactions in net income, and we reflect the adjustments resulting from the translation of financial statements into our reporting currency during consolidation as a component of accumulated other comprehensive income within equity. The assets and liabilities of subsidiaries located outside of the United States are translated into U.S. dollars at the rates of exchange at the balance sheet dates. The statements of operations are translated at the weighted average rates during the periods.
Cash Equivalents
We classify all short-term, highly liquid investments with original maturities of three months or less as cash and cash equivalents.
Inventories
Inventories are valued at the lower of cost or market value. Cost is determined by the first-in, first-out (FIFO) or moving average methods. Exploration costs are expensed as incurred.
Receivables and Allowance for Doubtful Accounts
We carry our receivables at their face amount less an allowance for bad debts. We establish the allowance for bad debts based on a review of several factors, including historical collection experience, current aging status of the customer accounts, and the financial condition of our customers.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Property, Plant, Equipment, and Mineral Rights and Reserves
Property, plant, equipment, and mineral rights and reserves are carried at cost less accumulated depreciation and depletion. 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
Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses. Fair value reflects the price a market participant would be willing to pay in a potential sale of the reporting unit. We review the carrying value of goodwill in each reporting unit for impairment annually as of October 1st or more frequently if indications exist which may suggest the carrying value is not recoverable. This review is a two step process. The first step involves comparing the estimated fair value of each reporting unit to the carrying value of that reporting unit. If the fair value of the reporting unit exceeds the carrying value, the goodwill is not considered impaired and the second step is unnecessary. If the fair value is less than the carrying value, the second step of the test would be performed to measure the amount of impairment loss to be recorded, if any.
Other Intangible Assets
Other intangible assets with a finite useful life are amortized on the straight-line method over the expected periods to be benefited.
Impairment of Long-Lived Assets
We review the carrying values of long-lived assets, including property, plant and equipment and intangible assets with a finite useful life whenever facts and circumstances indicate that the assets may be impaired. Recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to the future net undiscounted cash flows we expect it to generate. If we consider an asset to be impaired, we record an impairment charge equal to the amount by which the carrying value of the asset exceeds the fair value. We report an asset to be disposed of at the lower of its carrying value or fair value, less costs of disposal.
In the case of intangible assets with indefinite lives, we review them annually for impairment. This review involves comparing the fair value of the intangible asset with its carrying amount. If its carrying amount exceeds its fair value, we recognize an impairment loss equal to that excess.
Available-for-Sale Securities
We record available-for-sale securities at their fair value using quoted market prices. We report their unrealized gains and losses net of applicable taxes as a component of accumulated other comprehensive income within equity. We have one equity security that we have accounted for as an available-for-sale security as of December 31, 2010 and 2009.
Income Taxes
We recognize deferred tax assets and liabilities relating to the future tax consequences of differences between the financial statement carrying value of existing assets and liabilities and their respective tax values. We measure deferred tax assets and liabilities using tax rates in effect in the years in which those temporary differences are expected to be recovered or settled. We recognize the effect that changes in tax rates have on deferred tax assets and liabilities in income in the period that the change is enacted. Valuation allowances are recorded to reduce deferred tax assets to amounts that are more likely than not to be realized. We classify interest and penalties associated with income taxes within the income tax line item of our consolidated statement of operations.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Freight and Sales Taxes
We report amounts charged to customers for shipping and handling fees as revenues and we report amounts incurred for these costs within cost of sales in the consolidated statements of operations (i.e. gross presentation with revenues and cost of sales). Also, we report amounts charged to customers for sales taxes and the related costs incurred for sales tax remittances to governmental agencies within net sales in the consolidated statement of operations (i.e. net presentation within revenues).
Product Liability & Warranty Expenses
We report expenses incurred for warranty and product liability costs in general, selling and administrative expenses in the consolidated statements of operations. Our warranty accrual is based on known warranty issues as of the balance sheet date as well as a reserve for unidentified claims based on historical experience.
Land Reclamation
We mine land for various minerals using a surface-mining process that requires the removal of overburden. In many instances, we are obligated to restore the land upon completion of the mining activity. We recognize this liability for land reclamation based on the estimated fair value of the obligation. We adjust the obligation to reflect the passage of time and changes in estimated future cash outflows.
Research and Development
Research and development costs are expensed as incurred within general, selling and administrative expenses.
Earnings per Share
Basic earnings per share is computed by dividing net income attributable to AMCOL shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is similarly computed, except the denominator is increased to include the dilutive effects of stock compensation awards and other share equivalents. Stock compensation awards are antidilutive and therefore excluded from our diluted earnings per share calculation when their exercise would result in a net decrease in the weighted average number of common shares outstanding. A reconciliation between the shares used to compute basic and diluted earnings per share follows:
Stock-Based Compensation
We account for stock-based compensation using the grant date fair value, which is based on the Black-Scholes option-pricing model. We recognize compensation cost over the requisite service period, which is generally the vesting period of the award.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Derivative Instruments and Hedging Activities
From time to time, we use derivative financial instruments to manage exposures to changes in interest rates and foreign currency exchange rates. We do not use derivative instruments for trading or other speculative purposes. We recognize our derivative instruments as either assets or liabilities in the balance sheet at their fair value. Our recognition of changes in the fair value (i.e. gains and losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and the type of that relationship. Hedges designated as cash flow hedges result in the changes in fair value being recorded in accumulated other comprehensive income. Changes in the fair value of derivative financial instruments for which hedge accounting is not applied, are recorded within Other, net within our Consolidated Statement of Operations. We have recorded losses of $772 and $4,932 in 2010 and 2009, respectively, in Other, net within our Consolidated Statement of Operations for changes in the fair value of derivative financial instruments for which we did not apply hedge accounting.
Reclassifications
Certain items in the prior years’ consolidated financial statements contained herein and notes thereto have been reclassified to conform with the consolidated financial statement presentation for 2010. These reclassifications did not have a material impact on our financial statements.
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Segment, Geographic, and Market Information
We determine our operating segments based on the discrete financial information that is regularly evaluated by our chief operating decision maker, our President and Chief Executive Officer, in deciding how to allocate resources and in assessing performance. Intersegment sales are insignificant, other than intersegment shipping which is eliminated in the corporate segment. We measure segment profit based on operating profit, and the costs deducted to arrive at operating profit do not include interest or income taxes.
Our five segments are as follows:
·
Minerals and materials - mines, processes and distributes clays and products with similar applications for sale to various industrial and consumer markets;
·
Environmental - provides services relating to and processes and distributes clay-based and other products for use as a moisture barrier in commercial construction, landfill liners and in a variety of other industrial and commercial applications;
·
Oilfield services - provides a variety of services and equipment rentals for both onshore and offshore applications to customers in the oil and natural gas industry;
·
Transportation - includes a long-haul trucking business and a freight brokerage business that provides services domestically to our subsidiaries as well as third-party customers; and
·
Corporate - intersegment shipping revenues are eliminated in our corporate segment, which also includes expenses associated with certain research and development, management, benefits and information technology activities.
Segment assets and liabilities are those assets used in the operations of that segment. Corporate assets and liabilities include domestic cash amounts, corporate leasehold improvements, miscellaneous equipment and certain assets and liabilities relating to multiple segments, notably benefit plan assets and liabilities.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table sets forth certain financial information as of and for the years ended December 31, 2010, 2009 and 2008:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table sets forth certain geographic financial information as of and for the three years ending December 31st. EMEA includes the European, Middle East and African geographic regions. Geographic revenues and operating profit are determined based on origin.
Net sales by product line for each fiscal year are as follows:
We generate revenues based on sales of products, provision of services and rental equipment, and shipment of goods to customers. A breakdown of each of these revenue generating activities and their related cost of goods sold for each of the past three years ending December 31 is shown in the following table.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(3)
Balance Sheet Related Information
We are exposed to credit risk on certain assets, primarily accounts receivable. We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising our customer base. We believe our allowance for doubtful accounts is sufficient to cover customer credit risks. The allowance for doubtful accounts as of and the activity for the years ended December 31 was as follows:
Inventories at December 31 consisted of:
Included within Other raw material, container, and supplies inventories in the table above is our reserve for slow moving and obsolete inventory. The balance of this reserve as of and the activity for the years ended December 31 was as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table presents our reclamation liability at the end of and changes during each of the years presented:
Accrued liabilities at December 31 consisted of:
Accumulated other comprehensive income (loss) at December 31 was comprised of the following components:
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Property, Plant, Equipment and Mineral Rights and Reserves
Property, plant, equipment and mineral rights and reserves consisted of the following:
The range of useful lives to depreciate plant and equipment is as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Depreciation and depletion were charged to income as follows:
(5)
Goodwill and Intangible Assets
The balance of goodwill by segment and the activity occurring in the past two fiscal years is as follows:
Intangible assets were as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Intangible assets with finite lives are being amortized primarily on a straight-line basis over their estimated useful lives of 3 to 50 years. We did not recognize any material impairment charge in either of the years included above with respect to intangible assets. Amortization expense on intangible assets for each of the years ended December 31, 2010, 2009, and 2008 was $5,056, $6,669, and $6,171, respectively. We estimate amortization expense of intangible assets for the future years ending December 31 will approximate the following amounts:
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Equity Investees
Information about our investments in and advances to affiliates and joint ventures at December 31, 2010 is as follows:
We account for all of the above investments under the equity method. We record the majority of our equity in the earnings of our investments in affiliates and joint ventures on a one quarter lag. None of the joint-venture companies are publicly traded, and the difference between our investment and the underlying net equity of the investee is immaterial.
In 2010, we recorded losses of $11,261 from our joint ventures and affiliated entities. Of these losses $7,196 is from Albagle Enterprise Limited (operates in Russia) and $6,875 is from Ashapura AMCOL N.V. (operates in Belgium). We recorded an impairment on Albagle Enterprise Limited due to its continued poor financial performance which is not expected to recover. Ashapura AMCOL N.V. impaired its fixed assets due its inability to generate profits. We believe that Ashapura AMCOL N.V. will not be able generate profits given the fundamentals of this business, the environment in which it operates, and a lack of support from our other partner in the business. Our investments in these ventures have been reduced to zero as of December 31, 2010
In 2009, we reduced our ownership percentage in Ashapura Minechem Limited (Ashapura), a publicly traded company on the Bombay Stock Exchange Limited, and began accounting for this investment as an available-for-sale security as of December 31, 2009. As of December 31, 2008, our investment in Ashapura was accounted for under the equity method of accounting. During 2008, we recorded a loss of $22,844 from Ashapura due primarily to losses on their foreign currency derivatives and their decreased bauxite shipments which reduced our investment to zero.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(7)
Income Taxes
Income from continuing operations before income taxes and income (loss) from affiliates and joint ventures was comprised of the following:
The components of the provision for income taxes attributable to income from continuing operations before income taxes and income (loss) from affiliates and joint ventures for the years ended December 31 consisted of:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and liabilities as of December 31 were as follows:
We believe it is more likely than not that the net deferred tax assets above will be realized in the normal course of business.
The following analysis reconciles the U.S. statutory federal income tax rate to the effective tax rates related to income from continuing operations before income taxes and equity income (loss) of affiliates and joint ventures:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Percentage Depletion
Depletion deductions are federal income tax deductions that arise from extracting minerals from the ground. This deduction is similar to depreciation in that it allows us to recover the cost of an asset over the resources’ productive life. It is different from depreciation, however, in that depletion deductions are a permanent book to tax difference, whereas depreciation deductions are temporary in nature. Hence, depletion deductions affect the effective tax rate whereas depreciation deductions do not. We calculate depletion under the percentage depletion method based upon revenues and costs from our mining activities in the U.S.
Tax on Reinvested Earnings
We have not provided for United States federal income tax and foreign income withholding taxes on approximately $109,502 and $97,404 of undistributed earnings from international subsidiaries as of December 31, 2010 and 2009, respectively, because such earnings are intended to be reinvested indefinitely outside of the U.S. If these earnings were distributed, foreign tax credits may become available under current law to reduce or eliminate the resulting income tax liability in the United States.
Tax Holidays
We have benefitted from tax holidays in both Poland and Thailand as a result of our locating and investing in special economic zones in each country. These tax holidays resulted in reductions to our income tax expense of $469, $1,608 and $1,703 in 2010, 2009 and 2008, respectively, representing benefits of $0.01, $0.05 and $0.05 to diluted earnings per share in 2010, 2009 and 2008, respectively.
Our agreement with the Polish tax authorities expired in 2010. This agreement made us eligible, based on certain terms and conditions, for a tax holiday exemption for all income tax activities through 2009. We continue to pursue other opportunities in an effort to minimize income tax within the country.
Our agreement with the Thai tax authorities provides for tax holidays on several investments. The most significant tax exemption is on all income from manufacturing operations (distributed goods are still subject to taxation) related to our initial investment. These initial manufacturing activities are taxable at 50% in years 2006 through 2010. An additional tax holiday was granted in 2007 for the expansion of our Thai facility. Income generated from this expansion is granted a 100% tax holiday from corporate income tax for eight (8) years beginning in 2007 and then taxable at 50% for five (5) years starting in 2015. We attempt to modify and obtain tax concessions when possible.
Exams
In the normal course of business, we are subject to examination by tax authorities throughout the world. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2004. The United States Internal Revenue Service (“IRS”) has examined our federal income tax returns for all open years through 2007, and is currently reviewing the 2008 and 2009 tax years.
NOLs and Credit Carryforwards
At December 31, 2010, we have $2,769 of various income tax credits, which we expect to utilize in the carryforward period. We have foreign and state net operating loss carryovers that have resulted in a deferred tax asset of $4,540 at December 31, 2010, against which we have recorded a full valuation allowance as it is more likely than not that we will not be able to utilize the loss in the carryforward period.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Unrecognized Tax Benefits
The following table summarizes the activity related to our unrecognized tax benefits:
We report penalties and interest relating to uncertain tax positions within the income tax expense line item within our consolidated statement of operations.
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Long-term Debt
Amounts of long-term debt were as follows:
We have a revolving credit agreement that provides a committed $225,000 revolving line of credit maturing on April 1, 2013, of which $136,289 remains available to us as at December 31, 2010. It is a multi-currency arrangement that allows us to borrow certain foreign currencies at an adjusted LIBOR rate plus 1.00% to 2.00%, depending upon the amount of the credit line used and certain capitalization ratios. The revolving credit agreement requires us to maintain certain financial covenants and ratios; we were in compliance with all of the covenants and ratios at December 31, 2010.
We had interest rate swaps outstanding which effectively hedge the variable interest rate on $33,000 of our borrowings as of December 31, 2010 and $23,000 of our borrowings as of December 31, 2009, under this revolving credit agreement, to a fixed rate of 3.15% per annum and 3.36% per annum, respectively, plus credit spread. Including the effect of this interest rate swap agreement, the borrowings under this revolving credit line at December 31, 2010 carried an average interest rate of 3.20%.
A qualified institution holds $75,000 of our senior notes which mature on April 2, 2017, subject to certain acceleration features upon an event of default, should one occur. These senior notes are comprised of (a) $45,000 aggregate principal amount of Series 2007-A Adjustable Fixed Rate Guaranteed Senior Notes, Tranche 1, due April 2, 2017 (the “Tranche 1” notes) and (b) $30,000 aggregate principal amount of Series 2007-A Adjustable Floating Rate Guaranteed Senior Notes, Tranche 2 (the “Tranche 2” notes). Tranche 1 bears interest at 5.78%, payable semi-annually in arrears on April 2nd and October 2nd of each year. Tranche 2 bears interest at an annual rate of 0.55% plus LIBOR in effect from time to time, adjusted quarterly, and is payable quarterly in arrears.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
As of December 31, 2010 and 2009, we had an interest rate swap outstanding which effectively hedges the variable interest rate of $30,000 of Tranche 2 senior notes to a fixed rate of 5.6% per annum.
On April 29, 2010, we issued and sold an aggregate of $50,000 of other senior notes to qualified institutional buyers pursuant to a note purchase agreement (the “Note Purchase Agreement”). These senior notes bear interest at a fixed annual rate of 5.46%, payable semi-annually in arrears on April 29th and October 29th of each year, beginning on October 29, 2010. Our obligations under the Note Purchase Agreement are guaranteed by certain of our subsidiaries pursuant to a Subsidiary Guaranty Agreement dated as of April 29, 2010 by such subsidiaries in favor of the purchasers of the Notes.
We also have an uncommitted, short-term credit facility maturing on November 15, 2011 that allows for maximum borrowings of $12,000, of which $8,237 was outstanding as of December 31, 2010 at an interest rate of 2.01%.
Maturities of long-term debt outstanding at December 31, 2010 were as follows:
At December 31, 2010 and 2009, we had outstanding standby letters of credit of approximately $10,926 and $11,026, respectively, which are not included in our Consolidated Balance Sheets. These letters of credit typically serve to guarantee performance of our land reclamation and workers’ compensation obligations; we have recorded amounts owed under these obligations in our Consolidated Balance Sheets as of December 31, 2010 and 2009.
(9)
Acquisitions
In 2008, we paid net cash of $40,977 to acquire one business within our oilfield services segment and recorded goodwill and intangible assets of $11,179 and $19,130, respectively. We expect to deduct the full amount of goodwill from taxable income in accordance with tax regulations.
(10)
Derivative Instruments and Hedging Activities
As a multinational corporation with operations throughout the world, we are subject to certain market risks. We use a variety of practices to manage these market risks, including, when considered appropriate, derivative financial instruments. We use derivative financial instruments only for risk management and not for trading or speculative purposes.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table sets forth the fair values of our derivative instruments and where they are recorded within our Consolidated Balance Sheet:
Cash flow hedges
We use interest rate swaps to manage variable interest rate risk on debt securities. Interest rate differentials are paid or received on these arrangements over the life of the swap. As of December 31, 2010 and 2009, we had an interest rate swap outstanding which effectively hedges the variable interest rate on $30,000 of our senior notes to a fixed rate of 5.6% per annum. We also had other interest rate swaps outstanding which effectively hedge the variable interest rate on $33,000 of our borrowings as of December 31, 2010 and $23,000 of our borrowings as of December 31, 2009, under our revolving agreement, to a fixed rate of 3.15% per annum and 3.36% per annum, respectively, plus credit spread.
Other
We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. Our primary exposures are to fluctuations in exchange rates between the U.S. dollar and the Euro, British pound, the Polish zloty and the South African Rand. We also have significant exposure to fluctuations in exchange rates between the British pound and the Euro as well as between the Polish zloty and the Euro. Occasionally, we enter into foreign exchange derivative contracts to mitigate the risk of currency fluctuations on these exposures.
We have not designated these contracts for hedge accounting treatment and therefore, changes in fair value of these contracts are recorded in earnings as follows:
We did not have any significant foreign exchange derivative instruments outstanding as of December 31, 2010 or 2009.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
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Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Our calculation of the fair value of derivative instruments includes several assumptions. The fair value hierarchy prioritizes these input assumptions in the following three broad levels:
Level 1 - Valuation is based on quoted prices (unadjusted) in active markets for identical assets or liabilities that the company has the ability to access at the measurement date.
Level 2 - Valuation is based on quoted prices for similar assets or liabilities in active market, quoted prices for identical or similar assets or liabilities in markets that are not active and model based valuations for which all significant inputs are observable in the market.
Level 3 - Valuation is based on model based techniques that use unobservable inputs for the asset or liability. These inputs reflect our own views about the assumption market participants would use in pricing the asset or liability.
The following table categorizes our fair value instruments according to the assumptions used to calculate those values at the end of each of the past two years:
Interest rate swaps are valued using discounted cash flows. The key input used is the LIBOR swap rate, which is observable at commonly quoted intervals for the full term of the swap. Available-for-sale securities are valued using quoted market prices. Deferred compensation and supplementary pension plan assets are valued using quoted prices for similar assets in active markets.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(12)
Asset Impairment Charge
During our third quarter ended September 30, 2009, our minerals and materials segment recorded a non-cash impairment charge of $1,980 to write down certain fixed assets to their estimated fair values based on a third-party appraisal (Level 2 inputs). The impairment charge is related to the closing of a plant within our minerals and materials segment due to reduced demand. This impairment charge is recorded within cost of sales within our Consolidated Statements of Operations. In addition, we increased our inventory reserve by $293 (also recorded within the cost of sales) to record the excess of cost over net realizable value of the inventory located at this plant, bringing the total expense associated with this write-off to $2,273.
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Leases
In 2008, we entered into a sale-leaseback transaction involving the construction of a new corporate facility. Under terms of the operating lease, rental payments in fiscal 2010 and 2009 approximate $2,583 and $2,532, respectively, and increase 2% annually thereafter through December 2028.
We have several noncancelable leases for railroad cars, trailers, computer software, office equipment, certain automobiles, and office and plant facilities. Total rent expense under operating lease agreements was approximately $12,485, $10,714 and $6,746 in 2010, 2009 and 2008, respectively.
The following is a schedule of future minimum lease payments for operating leases (with initial terms in excess of one year) as of December 31, 2010:
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Employee Benefit Plans
We have a defined benefit pension plan covering substantially all of our domestic employees hired before January 1, 2004. The benefits are based upon years of service and qualifying compensation. Our funding is calculated using the actuarially determined unit credit cost method. Contributions are intended to provide not only for benefits attributed to services to date, but also for those expected to be earned in the future.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
In addition to the qualified plan, we sponsor a supplementary pension plan (SERP) that provides benefits in excess of qualified plan limitations for certain employees. Also, we have invested assets for the benefit of the employees covered by the supplemental pension plan in the event that there is a change in control.
The following tables set forth our pension obligations and funded status at December 31:
The funded status of the SERP plan and our defined benefit pension plan is included within Pension liabilities in our Consolidated Balance Sheets.
Pension cost in each of the following years was comprised of:
The following table summarizes the assumptions used in determining our pension obligations at the end of each of our last two years:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table summarizes the assumptions used in determining our net periodic benefit cost in the years ended December 31:
We adopted the measurement date provisions of ASC 715 in 2008 which required us to measure the plan assets and projected benefit obligations as of December 31, 2008. We had previously used an October 1st measurement date. The impact of this change was a $423 reduction to retained earnings. We expect to contribute up to $1,500 to the defined benefit pension plan in 2011. The accumulated benefit obligation (ABO) for our defined benefit pension plan was $40,949 and $36,377 at December 31, 2010 and 2009, respectively. The ABO for our supplementary pension plan was $7,606 and $6,404 at December 31, 2010 and 2009, respectively.
The estimated future benefit payments contemplated under these plans, reflecting expected future service, as appropriate, are presented in the following table:
Note 3 shows the amounts included within accumulated other comprehensive income as of December 31, 2010 and 2009 that have not yet been recognized as components of net periodic benefit cost. Of these balances at December 31, 2010, the amounts expected to be amortized in the next fiscal year are $59 and $96 for the unrecognized prior service cost and unrecognized net actuarial loss, respectively. Excluding the effect of income taxes, the amounts recognized within other comprehensive income and the prior service cost for 2010 and 2009, are as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Defined Benefit Pension Plan
Fair values of our defined benefit pension plan assets at December 31, by asset category, are as follows:
Assets classified as Level 1 within the fair value hierarchy are valued using quoted prices on the major stock exchange on which individual assets are traded. Where quoted prices are not available in active market, these assets are valued using pricing models, quoted prices of assets with similar characteristics in active markets or quoted prices for identical or similar assets in markets that are not active and are classified as Level 2 within the fair value hierarchy. Redemption for our hedge funds occur at net asset value and are subject to restrictions, therefore hedge funds assets are classified as Level 3 within the fair value hierarchy.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following is a reconciliation of changes in fair value measurements of plan assets using significant unobservable inputs (Level 3):
We employ a total return investment approach whereby we use a mix of equities and fixed income investments to maximize the long-term return of plan assets with a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and our corporate financial condition. The investment portfolio contains a diversified blend of equity and fixed-income investments. The investment objectives emphasize maximizing returns consistent with ensuring that sufficient assets are available to meet liabilities, and minimizing corporate cash contributions. Our defined benefit plan assets are managed so as to include investments that balance income and capital appreciation.
Our defined benefit plan has a target range for different types of investments: equity securities (between 41% and 69%), fixed income securities and bonds (between 18% and 31%), alternative investments (between 5% and 23%), and cash (between 0% and 10%). This allocation takes into account factors such as the average age of employees covered by the Plan (benefit obligations) as well as overall market conditions. Interim portfolio reviews result in investment allocations being evaluated at least twice a year by the Pension Committee and rebalancing takes place as needed. Equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, and small and large capitalizations. Fixed income securities and bonds include both government and corporate investment vehicles. These include a series of laddered debt securities as well as bond funds.
Historical markets are studied and long-term historical relationships between equities and fixed-income are preserved consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. The long-term rate of return for plan assets is established via a building block approach with proper consideration of diversification and rebalancing.
Defined Contribution Pension Plan
Employees hired on or after January 1, 2004 do not participate in our defined benefit plan or SERP. Instead, they participate in a defined contribution plan whereby we make a retirement contribution into the employee’s savings plan equal to 3% of their compensation. We made total contributions to this plan of $1,248, $1,021 and $1,291 in 2010, 2009 and 2008, respectively.
401(k) Savings Plan
We also have a savings plan for our U.S. personnel. In 2010, we made a contribution in an amount equal to an employee’s contributions up to a maximum of 4% of the employee’s annual earnings. We make contributions to this plan using either cash or our own common stock which we purchase in the open market. Our contributions under the savings plan were $2,842 in 2010, $2,803 in 2009 and $2,897 in 2008.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
Other
We also have a deferred compensation plan and a 401(k) restoration plan for our executives.
(15)
Stock Compensation Plans
For purposes of calculating compensation cost, we estimate the fair value of each award on the date of grant using the Black-Scholes option-pricing model. We used the following assumptions in calculating the fair value of awards granted in each of the following years:
1998 Long-Term Incentive Plan
This plan provides for the award of incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and phantom stock. We reserved 3,900,000 shares of our common stock for issuance to our officers, directors and key employees. Different terms and conditions apply to each form of award made under the plan. Awards granted since 2003 vest ratably over a three year period and expire 6 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. Options awarded under this plan prior to 2003 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. These options are exercisable as they vest and expire 10 years after the date of grant, except in the event of termination, retirement or death of the optionee or a change in control of the Company.
Changes in options outstanding are summarized as follows:
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
2006 Long-Term Incentive Plan
On May 11, 2006, our shareholders approved the AMCOL International Corporation 2006 Long-Term Incentive Plan. This plan permits a total of 1,500,000 shares of AMCOL common stock to be awarded to eligible directors and employees through the use of nonqualified stock options, incentive stock options, restricted stock or restricted stock units, and stock appreciation rights. Different terms and conditions apply to each form of award made under the plan. Awards granted prior to 2009 have a six year life from the date of grant and vest ratably over a three year period from the date of grant. Awards granted in 2009 have a ten year life from the date of grant and vest ratably over a three year period from the date of the grant. At any time, the Board of Directors may amend the plan, which automatically expires on May 12, 2016.
2010 Long-Term Incentive Plan
On May 6, 2010, our shareholders approved the AMCOL International Corporation 2010 Long-Term Incentive Plan. This plan permits a total of 2,000,000 shares of AMCOL common stock to be awarded to eligible directors and employees through the use of nonqualified stock options, incentive stock options, restricted stock or restricted stock units, and stock appreciation rights. All shares under this plan remain available for future issuance at December 31, 2010. Different terms and conditions apply to each form of award under the plan. Awards that will be granted from this plan will have a ten year life from the date of grant and vest ratably over a three year period from the date of the grant. At any time, the Board of Directors may amend the plan, which automatically expires on May 7, 2020.
All Stock Compensation Plans
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
The following table summarizes information about stock compensation awards outstanding and exercisable at December 31, 2010:
The following table summarizes information about our nonvested stock compensation awards outstanding:
(16)
Contingencies
We are party to a number of lawsuits arising in the normal course of its business. We do not believe that any pending litigation will have a material adverse effect on our consolidated financial statements.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(17)
Quarterly Results (Unaudited)
Unaudited summarized results for each quarter of the last two years are as follows:
(A) Earnings per share (EPS) for each quarter is computed using the weighted-average number of shares outstanding during the quarter, while EPS for the year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal the EPS for the year.
Our minerals and materials segment recorded expenses of $2,982 and $2,779 in third quarter ending September 30, 2010 and fourth quarter ending December 31, 2010, respectively, resulting from operational issues in our domestic personal care products business within our minerals and materials segment.
We also recorded the following charges during our fourth quarter ended December 31, 2010:
-
Non-cash losses from impairments associated with two of our joint ventures of $11,705, as disclosed more fully in Note 6;
-
Expenses of $2,665 associated with the retirement of our retired CEO; and
-
Tax expenses of $1,300 associated with the recognition of valuation allowances in foreign jurisdictions.
AMCOL INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands, except share and per share amounts)
(A) Earnings per share (EPS) for each quarter is computed using the weighted-average number of shares outstanding during the quarter, while EPS for the year is computed using the weighted-average number of shares outstanding during the year. Thus, the sum of the EPS for each of the four quarters may not equal the EPS for the year.
During our third quarter ended September 30, 2009, our minerals and materials segment recorded a non-cash impairment charge of $1,980 to write down certain fixed assets to their estimated fair values based on a third-party appraisal as discussed more fully in Note 12.
We recorded an income tax benefit of $0.9 million in our fourth quarter ending December 31, 2009 related to the resolution of audits on prior years’ tax returns.
Ashapura Minechem Limited
Financial Statements as of March 31, 2009 and 2008 (unaudited)
and for the Years Ended March 31, 2009, 2008 (unaudited) and 2007 (unaudited)
and the Independent Auditors’ Report
Sanghavi & Company
Chartered Accountants
REPORT OF INDEPENDENT AUDITOR
To
The Board of Directors of
Ashapura Minechem Limited
We have audited the accompanying balance sheet of Ashapura Minechem Limited (“the Company”), a company incorporated in India, as of March 31, 2009 and the related profit and loss account and the cash flow statement for the year then ended (all expressed in Indian Rupees). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to and nor were we engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.
We did not audit the financial statements of certain subsidiaries and joint venture companies whose financial statements reflect total assets of Rs. 33,465.88 lacs as at March 31, 2009 and total revenues of Rs. 19,716.92 lacs for the year ended on March 31, 2009. These financial statements and other financial information have been audited by other auditors whose reports have been furnished to us by the management of the Company, and our opinion is based solely on the report of the other auditors.
In our opinion based on our audit and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2009 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in India.
Accounting principles generally accepted in India vary in certain respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of the net profit for the year ended March 31, 2009 and the determination of stockholder’s equity as of March 31, 2009, to the extent summarized in Note No. 23 of Schedule S.
SANGHAVI & COMPANY
Chartered Accountants
Mumbai, India
September 22, 2009
ASHAPURA MINECHEM LIMITED
CONSOLIDATED BALANCE SHEET AS AT 31st MARCH 2009
The Accompanying Schedules A to S are an integral part of this financial statements.
ASHAPURA MINECHEM LIMITED
CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED ON 31st MARCH 2009
(Amounts in Rupees)
The Accompanying Schedules A to S are an integral part of this financial statements.
ASHAPURA MINECHEM LIMITED
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31st MARCH 2009
(Indian Rupees in lacs)
SCHEDULE - G
FIXED ASSETS
* Rs.8,567,702 are transferred to pre-operative expenses
SCHEDULE - S
NOTES ON CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31st MARCH 2009
a.
Figures in the brackets are the figures for the previous year, unless otherwise stated.
b.
All the amounts are stated in Indian Rupees, unless otherwise stated.
c.
Previous year’s figures are regrouped and rearranged, wherever necessary.
Basis of Presentation of Financial Statements
The consolidated financial statements relate to Ashapura Minechem Limited (“the Company”), its subsidiary companies, joint venture companies and associates. The consolidated accounts have been prepared on the following basis:
a.
The financial statements of the subsidiaries, joint ventures and associates used in the consolidation are drawn up to the same reporting date as that of the parent company, i.e. year ended 31 st March 2009 except for a foreign joint venture company, EMO Ashapura Energy and Mining Limited - Nigeria where the accounts are last drawn up to 31 st December 2008.
b.
The financial statements of the subsidiaries and joint venture companies are audited except for foreign joint venture companies, EMO Ashapura Energy and Mining Limited - Nigeria, Ashapura Al Zawawi Minerals LLC - Oman and Ashapura Amcol NV - Antwerp where the financial statements are unaudited.
Financial statements of all the associates are unaudited as provided by the respective companies.
c.
The consolidated financial statements present the consolidated accounts of Ashapura Minechem Limited with its following subsidiaries, joint ventures and associates.
d.
The financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956, to the extent applicable, and are based on the historical cost convention on an accrual basis.
Principles of Consolidation
a.
The financial statements of the Company and its subsidiary companies have been combined on a line-by-line basis by adding together the book values of like items of the assets, liabilities, income and expenses, after fully eliminating therefrom intra-group balances and intra-group transactions as per Accounting Standard (AS) - 21 “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India.
b.
Interests in joint ventures have been accounted by using the proportionate consolidation method as per Accounting Standard (AS) - 27 “Financial Reporting of Interest in Joint Ventures” issued by the Institute of Chartered Accountants of India.
c.
Interest in associates have been accounted for by using the equity method as per Accounting Standard (AS) - 23 “Accounting for Investments in Associates in Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India.
d.
The financial statements of the parent company and its subsidiaries and joint ventures have been consolidated using uniform account policies for like transactions and other events in similar circumstances.
e.
The excess of cost to the parent company of its investment in each of the subsidiary over its share of equity in the respective subsidiary, on the acquisition date, is recognized in the financial statements as Goodwill on Consolidation and carried in the Balance Sheet as an asset.
f.
The investment in associates is initially recorded at cost. Goodwill and/or Capital Reserve arising at the time of acquisition and the carrying amount is adjusted to recognize the share of profit or loss of the investee after the date of acquisition.
Significant Accounting Policies
Use of Estimates:
The preparation of financial statements in conformity with GAAP requires the management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.
Fixed Assets:
Tangible Assets are stated at cost less depreciation. All costs incurred till the date the asset is ready for use, including interest on loans relating to the acquisition, installation and substantial modification to the fixed assets are capitalized and included in the cost of the respective fixed assets.
Depreciation is provided at the rates and in the manner specified in the Schedule XIV in accordance with the provisions of section 205 (2) (b) of the Companies Act, 1956.
The assets of foreign subsidiaries and joint venture companies are depreciated over the estimated useful life of the respective assets.
Investments:
Long-term investments are stated at cost. Provision, if any, is made for permanent diminution in the value of investments. Current investments are stated at lower of cost or market value determined category wise. Dividends/interests are accounted for as and when the right to receive the same is established.
Inventories:
Raw Materials and Stores and Spares are valued at cost determined on FIFO basis or net realizable value, whichever is lower.
Stock of finished and semi-finished goods of mineral ores to the extent to which sales is assured is valued at net realizable value.
Other inventories of finished and semi-finished goods are valued at lower of the cost or net realizable value.
Sales:
Sales comprise of sale of goods and services and are stated net of inter division transfer of sales and services.
Mining Expenses:
Expenses incurred on mining including removal of overburden of mines are charged to the profit & loss account as mining cost on the basis of quantity of minerals mined during the year since removal of overburden and mining are carried out concurrently and relatively within short period of time.
Employee Benefits:
Post-employment benefit plans
Defined Contribution Plan: Contribution for provident fund are accrued in accordance with applicable statutes and deposited with the Regional Provident Fund Commissioner.
Defined Benefit Plan: The liabilities in respect of gratuity and leave encashment are determined using Projected Unit Credit Method with actuarial valuation carried out as at balance sheet date. Actuarial gains and losses are recognized in full in the profit and loss account for the period in which they occur.
Contributions in respect of gratuity are made to the Group Gratuity Scheme with Life Insurance Corporation of India. Employee benefits recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized past service cost and as reduced by the fair value of respective fund.
Short-term employee benefits
The undiscounted amount of short-term employee benefits expected to be paid in exchange for services rendered by employees is recognized during the period when the employee renders the service.
In respect of the foreign subsidiaries and joint venture companies, the provision for employee benefits is made in accordance with the respective local statutes applicable.
Research and Development:
Revenue expenditure on Research & Development is charged against the profit for the year in which it is incurred. Capital expenditure on Research and Development is shown as an addition to the fixed assets and is depreciated on the same basis as other fixed assets.
Foreign Currency Transactions:
a.
Foreign currency transactions are accounted for at the rates prevailing on the date of transactions. Exchange rate differences related to sales and other transactions are dealt with in the profit & loss account.
b.
Monetary assets and liabilities related to foreign currency transactions remaining unsettled at the end of the year are translated at the closing rates and profit or loss arising there from is dealt with in the profit & loss account.
c.
In respect of forward foreign exchange contracts, the difference between the forward rate and exchange rate at the inception of the contract is recognized as income or expense, as the case may be, over the life of the contract.
d.
Realized gain or loss on cancellation of forward exchange contracts are recognized in the profit and loss account for the year in which they are cancelled.
e.
Operations of the foreign subsidiary and joint venture companies are classified as non-integral. Revenue items of the foreign subsidiary and joint venture companies are translated at average rate. Monetary assets and liabilities of the foreign subsidiary and joint venture companies are translated at the closing rate.
In respect of operations of the foreign subsidiary and joint venture companies, the translation of functional currency into reporting currency is performed for the consolidation purpose. The gain or loss resulting from such translation is recognized in foreign currency translation reserve.
Financial Derivatives Transactions:
The Company uses structured foreign exchange forward contracts and options to hedge its exposure to movement in foreign exchange rates. The use of these foreign exchange derivatives reduces the risk to the Company and the Company does not use foreign exchange derivatives for trading or speculation purposes.
Gain or loss of the financial derivative contracts are accounted for on settlement. In case of the contracts having long dated tenor with multiple contingent / uncertain events, loss, if any, on account of mark to market (MTM) the outstanding contracts as on the balance sheet date is not provided for.
Borrowing Costs:
Net cost of borrowed funds for the projects are capitalized and included in the cost of fixed assets till its completion and other borrowing costs are recognized as expenses in the period in which they are incurred.
Deferred Revenue Expenditure:
Deferred revenue expenditure covered under Accounting Standard (AS-26) issued by the institute of Chartered Accountants of India and against which no intangible assets are acquired, are charged to the profit & loss account. Other deferred revenue expenditure is amortized over a period of time over which the benefit of such expenditure is likely to accrue.
Employee Stock Option Based Compensation:
The compensation cost of stock options granted to the employees is calculated using intrinsic value of the stock options. The compensation expenses are amortized uniformly over the vesting period of the option.
Taxation:
Provisions are made for current income tax and fringe benefit tax based on tax liability computed in accordance with relevant tax rates and tax laws.
Deferred tax is recognized, subject to the consideration of prudence, on timing difference, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.
Earning Per Share:
Basic earning per share is computed by dividing the net profit attributable to equity shareholders for the year by weighted average number of equity shares outstanding during the year. Diluted earning per share is computed using the weighted average number of equity and dilutive equity equivalent shares outstanding at year-end.
Provision and Contingencies:
The company creates a provision when there is present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made.
4.
The Company has contracted with the banks certain structured foreign currency products, which have maturity up to February, 2013 to hedge its foreign currency exposures. Since these contracts have long dated tenor with multiple contingent / uncertain events, ascertainment of fair value of these contracts, in the opinion of the management, is not feasible.
The mark to market (MTM) valuation of forward contracts and options outstanding as at the balance sheet date, in accordance with the announcement dated 29 th March 2008 by the Institute of Chartered Accountants of India, indicates basic loss of Rs.250.82 crores subject to favorable spot rate in the remaining tenor of the contracts. Since the contracted foreign currency is intended to be delivered on and around stipulated dates and the management is of the opinion that the said loss is notional loss and not crystallized as on the balance sheet date, the same is not provided for the accounts.
5.
The Company has disclosed only such policies and notes from the individual financial statements, which fairly present the needed disclosures. Lack of homogeneity and other similar considerations made it desirable to exclude some of them, which in the opinion of the management, could be better viewed, when referred from the individual financial statements.
6.
Two companies, Ashapura Amcol NV - Antwerp and Emo Ashapura Energy and Mining Limited - Nigeria were associates till 31 st March, 2008, which have become joint ventures companies during the year and have been considered in consolidation accordingly in the respective years.
7.
Extra Ordinary item of Rs.5,270,821 is on account of loss due to fire in one of the offices of the Company during the year.
8.
In the opinion of the management, the Group’s major business activity falls within a single primary segment i.e. bulk minerals for industrial consumption and its derivatives, which are subject to the same risks and returns and since the other operational activities are not significant in nature, the disclosure requirements of Accounting Standard (AS) - 17 “Segment Reporting” issued by the Institute of Chartered Accountants of India are not applicable.
9.
In the opinion of the Directors, the current assets, loans and advances are approximately of the value as stated in the balance sheet, if realized in the ordinary course of the business. The provision of all known liabilities is adequate and not in excess of the amount reasonably required.
10.
Balances with Debtors, Creditors and for Loans and Advances are subject to confirmations from the respective parties and reconciliation, if any. In absence of such confirmations, the balances as per books have been relied upon by the Auditors.
11.
Certain transactions for part of the year with the parties covered u/s 301 of the Companies Act are subject to necessary approval u/s 297 from the concerned authorities.
12.
Sundry Debtors for more than six months include Rs. 4,130,629 (Rs.2,922,831) due from firms/companies in which some of the directors are interested.
13.
Permanent diminution in the value of the investment in an associate company, Crystal Nanoclay Pvt. Limited, Rs. 4,410,000 has been provided for in the profit and loss account for the year.
14.
Based on the business plans for the future, the directors believe that the Parent Company would have sufficient taxable income in the future years, and therefore, the management has decided to provide for deferred tax assets arising out of the carried forward business loss permitted under the Income Tax Act, to the extent of expected set-off.
Accordingly, deferred tax assets of Rs. 1,345,311,770 (net) arising during the year is debited to the profit & loss account. Details of the balance of Rs.1,288,331,430 are as under:
15.
The proportionate share of assets, liabilities, income and expenses in respect of the Company having interest in the jointly controlled entities, Ashapura Volclay Limited (holding: 50%), Ashapura Volcaly Chemicals Pvt. Limited (holding: 50%), Ashapura Al- Zawawi Minerals LLC (holding: 60%), Ashapura Amcol NV (holding: 50%) and Emo Ashapura Energy and Mining Limited (holding: 48 %) are as under:
16.
Contingent Liabilities:
(Rs. in Lacs)
17.
Advances recoverable in cash or in kind or for value to be received includes:
18.
Related Party Transactions:
a. Associates:
● Ashapura Shipping Limited
● Ashapura Volclay Limited
● Ashapura Volclay Chemicals Private Limited
● Ashapura Exports Private Limited
● Ashapura Mineral Company
● Sharda Industrial Corporation
● Prabhudas Vithaldas
● K.M.Mehta
● Ashapura Infin Private Limited
● Hudson MPA Sdn Bhd, Malaysia
● Crystal Nanoclay Private Limited
● Ashapura Amcol NV, Antwerp
● Emo Energy & Mining Co. Limited, Nigeria
● Ashapura Al- Zawawi Minerals LLC
● Ashapura Arcadia Logistic Private Limited
● Shantilal Multiport Infrastructure Private Limited
● Hemprabha Trading & Investments Co. Pvt Ltd.
● Gurbarga Trading & investments Co. Pvt. Ltd
b. Key Management Personnel:
● Mr. Navnitlal R Shah
● Mr. Chetan Shah
● Mrs. Dina C Shah
19.
In accordance with the Accounting Standard (AS) - 20 on “Earnings per Share” issued by the Institute of Chartered Accountants of India, the earning per share is as under:
20.
Figures pertaining to the subsidiary companies as well as a joint venture companies have been reclassified wherever necessary to bring them in line with the Parent Company’s financial statements.
21.
Figures for the previous year are regrouped and rearranged, wherever necessary.
22.
Financial statements of three joint venture companies and four associates wherein the company’s share of loss (net) aggregates to Rs. 516.76 lacs and Rs. 21.92 lacs respectively are unaudited and the overall financial impact being not material, auditors have relied upon the unaudited financial statements as provided by the Company’s management for the purpose of our examination of consolidated financial statements of the company.
23.
Summary and Reconciliation of the Differences between Indian and United States Generally Accepted Accounting Principles
The Company’s financial statements are prepared in accordance with accounting principles generally accepted in India (“Indian GAAP”), which differ from those generally accepted in the United States (“US GAAP”). The significant differences, as they apply to the Company, and their effect on net income and total assets are shown and summarized as follows:
* Unaudited
Notes:
A.
Inventory Valuation
For mining entities, Indian GAAP permits inventory valuation at net realizable value to the extent the sale is assured, whereas US GAAP requires such inventory to be valued at cost or net realizable value whichever is lower. The changes in valuation are due to inventory valued at net realizable value in case of inventories awaiting shipment for which there is a sales commitment.
B.
Fair Market Value of Derivative Contracts
As per Indian GAAP the company is required to provide losses in respect of all outstanding derivative contracts at the balance sheet date by marking them to market. However gains on such derivative contracts are to be recognized only on settlement. As per US GAAP, all outstanding derivative contracts are to be measured at fair value.
C.
Provision for Compensated Absences
Since April 2008, as required under Indian GAAP, the company has accounted for compensated absences as other long-term employee benefits based on liability (discounted present value) determined on actuarial basis. As per US GAAP, the said liability is to be accounted for without discounting.
D.
Stock Compensation Expenses
Indian GAAP permits accounting for stock compensation expenses based on intrinsic value of the options. As per US GAAP, provision for stock compensation is to be accounted based on fair value of the said options. Accordingly, the same is determined by the Company as per Black Scholes method.
E.
Mineral Reserves
The company has made certain acquisitions prior to 2007, which are recorded as investments as per Indian GAAP. As per US GAAP the purchase price over the fair market value of the net assets has to be accounted as intangible assets and amortized. The “Mineral reserves” adjustments above recognizes the fair value of mineral rights acquired in the acquisitions as well as the subsequent amortization of those mineral rights over their useful life as is required per US GAAP.
F.
Dry Dock Expenses:
The company has incurred overhaul / major repair expense for a ship acquired in 2009. Indian GAAP does not permit capitalization of such expenses; where as US GAAP allows capitalization of such expenses, which are to be amortized over the expected period of benefit.
G.
Pre-operative expenses:
Guidance in India permits capitalization of pre-operative expenses. US GAAP requires only direct expenses related to construction/ acquisition of the assets to be capitalized. Expenses other than direct expenses are therefore to be charged to the Income statement.
H.
Provision for Mine Restoration Costs:
Indian GAAP does not require ascertainment of fair value of retirement obligation. US GAAP requires that the fair value of an asset retirement obligation be recorded when a reasonable estimate of fair value can be made. The estimate is to be based on legal obligation that arises as a result of the acquisition, construction or development of long-lived asset. Hence the company has made necessary estimates for provision of expenses for afforestation and mine restoration, which are to be charged to the Income statement.
I.
Income Taxes
This adjustment provides for the income tax effect, if any, for each of the aforementioned adjustments that affect net income as would be required as per US GAAP.
J.
Minority Interest
As per US GAAP, minority interest is included as a component of equity, whereas it is included within liabilities under Indian GAAP. The adjustment reclassifies into equity the amount of minority interest to conform the presentation of equity to US GAAP.
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 1, 2011
AMCOL INTERNATIONAL CORPORATION
By: /s/ Ryan F. McKendrick
Ryan F. McKendrick
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John Hughes March 1, 2011
John Hughes
Chairman of the Board and Director
/s/ Ryan F. McKendrick March 1, 2011
Ryan F. McKendrick
President and Chief Executive Officer
and Director
/s/ Donald W. Pearson March 1, 2011
Donald W. Pearson
Vice President and Chief Financial Officer;
Treasurer and Chief Accounting Officer
/s/ Arthur Brown March 1, 2011
Arthur Brown
Director
/s/ Daniel P. Casey March 1, 2011
Daniel P. Casey
Director
/s/ Jay D. Proops March 1, 2011
Jay D. Proops
Director
/s/ Clarence O. Redman March 1, 2011
Clarence O. Redman
Director
/s/ Dale E. Stahl March 1, 2011
Dale E. Stahl
Director
/s/ Audrey L. Weaver March 1, 2011
Audrey L. Weaver
Director
/s/ Paul C. Weaver March 1, 2011
Paul C. Weaver
Director
INDEX TO EXHIBITS
Exhibit
Number
3.1
Restated Certificate of Incorporation of the Company (1), as amended (2), as amended (3)
3.2
Bylaws of the Company as amended and restated (4)
Article Four of the Company’s Restated Certificate of Incorporation (1), as amended (3)
10.1
AMCOL International Corporation Nonqualified Deferred Compensation Plan (5)
10.2
AMCOL International Corporation 1998 Long-Term Incentive Plan (6), as amended* (7)
10.3
AMCOL International Corporation 2006 Long-Term Incentive Plan (8), as amended * (5)
10.4
AMCOL International Corporation Annual Cash Incentive Plan* (8)
10.5
AMCOL International Corporation Discretionary Cash Incentive Plan* (8)
10.6
AMCOL International Corporation Amended and Restated Supplementary Pension Plan for Employees* (5)
10.7
Employment Agreement effective as of March 25, 2009 by and between Registrant and Lawrence E. Washow* (9)
10.8
Employment Agreement effective as of February 2, 2009 by and between Registrant and Donald W. Pearson* (9)
10.9
Employment Agreement effective as of March 25, 2009 by and between Registrant and Gary Castagna* (9)
10.10
Employment Agreement effective as of March 25, 2009 by and between Registrant and Ryan F. McKendrick* (9)
10.11
A written description of compensation for the Board of Directors of the Company is set forth under the caption “Director Compensation” in the definitive Proxy Statement to be filed with the Securities and Exchange Commission and delivered to the Company’s shareholders in connection with the Annual Meeting of Shareholders to be held on May 5, 2011, and is hereby incorporated by reference.*
10.12
Credit Agreement by and among AMCOL International Corporation and Harris Trust and Savings Bank, individually and as agent, Wells Fargo Bank, N.A., Bank of America N.A. and the Northern Trust Company dated November 10, 2005 (10), as amended (11), as further amended (12), as further amended (13), as further amended (14)
10.13
Form of Indemnification Agreement between the Company and its directors and executive officers (4)
10.14
Employment Agreement effective as of January 1, 2010 by and between Registrant and Michael Johnson* (15)
10.15
Employment Agreement effective as of January 1, 2010 by and between Registrant and Robert Trauger* (15)
10.16
Form of Restricted Stock Award Agreement between Registrant and Gary Castagna and Ryan F. McKendrick* (16)
10.17
Note Purchase Agreement dated as of April 29, 2010 by and among the Registrant and the Lincoln National Life Insurance Company and the Lincoln Life and Annuity Company of New York (17)
10.18
AMCOL International Corporation 2010 Long-Term Incentive Plan* (18)
10.19
AMCOL International Corporation 2010 Cash Incentive Plan* (18)
10.20
Form of Option Award Agreement* (18)
10.21
Form of Annual Cash Award Agreement* (18)
10.22
Transition and Retirement Agreement dated as of November 19, 2010 by and between Registrant and Lawrence E. Washow* (19)
10.23
Performance based Restricted Stock Form Award Agreement * (20)
AMCOL International Subsidiary Listing
23.1
Consent of Independent Registered Public Accounting Firm
23.2
Consent of Sanghavi & Company
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the. Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
________________________________
(1)
Exhibit is incorporated by reference to the Registrant’s Form S-3 filed with the Securities and Exchange Commission on September 15, 1993.
(2)
Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1995.
(3)
Exhibit is incorporated by reference to the Registrant’s Form 10-Q filed with the Securities and Exchange Commission for the quarter ended June 30, 1998.
(4)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed the Securities and Exchange Commission on February 13, 2009.
(5)
Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2008.
(6)
Exhibit is incorporated by reference to the Registrant’s Form S-8 (File 333-56017) filed with the Securities and Exchange Commission on June 4, 1998.
(7)
Exhibit is incorporated by reference to the Registrant’s Form S-8 (File 333-68664) filed with the Securities and Exchange Commission on August 30, 2001.
(8)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 12, 2006.
(9)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 5, 2009.
(10)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 15, 2005.
(11)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on June 19, 2006.
(12)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on March 13, 2007.
(13)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed the Securities and Exchange Commission on May 23, 2008.
(14)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on September 23, 2009.
(15)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on January 5, 2010.
(16)
Exhibit is incorporated by reference to the Registrant’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2009.
(17)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on April 30, 2010.
(18)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on May 7, 2010.
(19)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on November 22, 2010.
(20)
Exhibit is incorporated by reference to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on February 14, 2011
*Management compensatory plan or arrangement